TaxTMI 
TaxTMI 
2016 (4) TMI 215
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....so to show cause and explain as to why the same should not be disallowed. In response to the notice the assessee filed a letter and stated that Himco was engaged in the business of time-sharing duties under which members were no either against refundable deposits were advanced membership fees for specified period, that under the timeshare agreement Himco was obliged to provide accommodation facilities for specified holiday period every year for members were eligible to exchange their holiday accommodation with other person in other hotels or resorts worldwide through a centralised agency, that it had accepted deposits from the members that were refundable on the expiry of 6th year or 12th year (25%) , that balance 75% of the deposit was to be refunded without any interest on expiry of the creditor, that at the option to claim 25% of the deposit rested with the members, that Himco adopted the accounting policy of not providing interest on the 25% portion of the deposit every year but in the year of payment of such interest at the time of refunding the deposit as and when any claim was made by a member, that it disclose the amount of such liability for the year and cumulative liabili....
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....that the amount in question was shown in the balance sheet and was duly accounted for in the books of accounts for the year ended on 31/3/2006, that as per the accounting method adopted by the assessee the amount of accrued interest was reduced from the amalgamation reserve account, that the said account was approved by the Hon'ble Bombay High Court, that the amount in question debited to amalgamation reserve account (being the general reserve)was an existing liability though the amount thereof was quantified on payment, that in subsequent years provision made in the books of accounts for the liability towards interest payable was being allowed by the AO in the assessments for the AY. 2007-08 onwards, that it had paid TDS of Rs. 11. 01 lakhs on the entire amount of expenditure and had complied with the provisions of section 194A of the Act. After considering the submission of the assessee and the assessment order, the FAA held that assessee under the scheme of amalgamation took over the assets and liabilities of Himco , that the liabilities included the liability in respect of refundable deposits which carried interest in terms of timeshare agreement, that it was required to quant....
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....ion provided that difference arising out of the accounting policies of both the company should be qualified and should be adjusted on the date of amalgamation in the amalgamation reserve account, that in order to comply with the provisions of the companies Act, income tax Act and accounting standard the assessee made provision for un-provided liability towards interest accrued on 25% of the refundable deposit of 30/06/2005 amounting to Rs. 1. 07 crores and existed the same based amalgamation this account in the books of company, that the side liability of interest accruing on the refundable portion of the deposit from 1. 07. 2005 onwards had been entered in the accounts of the assessee in the profit and loss account, that the assessee had taken over all the assets and liabilities of Himco, that included liability in respect of refundable deposits. Departmental representative argued that the liability was contingent, that it was only a provision, that same was not an allowable expenditure as per the provisions of the Act. 2. 3. We have heard the rival submissions and perused the material before us. We find that as per the orders of the Hon'ble Bombay High Court, Himco had amalgamat....
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....ets and liabilities of the business, which were carried on by the erstwhile firm, were taken over by the assessee-firm at their book value as on 31/03/1969. Before the assessee-firm took over the assets and liabilities of the erstwhile firm, the sole selling agents had filed their suit claiming various amounts against the erstwhile firm and the suit was decreed on 18/12/1969, for, inter alia, an amount of Rs. 14, 250 payable to the sole selling agents by way of interest. The assessee claimed the amount as its trading liability which was disallowed by the AO on the ground that the liability related to the erstwhile firm. The FAA affirmed the order of the AO. On further appeal, the Tribunal held that the agreement of 1/04/1969, was comprehensive enough to saddle the assessee with the liability of the erstwhile firm qua its sole selling agents and allowed the assessee's appeal. On a reference the Hon'ble Allahabad High Court held as under: " .... . as the assessee-firm had taken over the entire assets and liabilities of the erstwhile firm and as the suit had already been filed before the agreement of April 1, 1969, was reached the agreement included the liability of the erstwhile....
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....rder of the FAA. 3. 3. We have heard the rival submissions and perused the material before us. We find that in the case of Godrej Agrovet (supra), the Hon'ble Court had held that percent of exempt income would constitute a reasonable estimate for making disallowance in the years earlier to 2008- 09. Following the same, we direct the AO to restrict the disallowance to 2% of the exempt income. Ground No. 2, is allowed in favour of the assessee, in part. 4. Last ground of appeal is about determination of income as per the provisions of section 115 JB of the Act. While calculating the book profit the AO made certain addition. During the course of appellate proceedings, before the FAA, the assessee submitted that the AO had proceeded with the computation of book profit u/s. 115JB of the Act by taking net profit of Rs. 15. 57 crores, that he had overlooked various clauses of scheme of amalgamation, that AO did not consider the published accounts and notes on accounts, that for computing the book profit all relevant facts were placed before him, that the assessee was entitled to deduction of Rs. 1. 07crores for the accrued interest calculated on the interest bearing deposits to the time....