TaxTMI 
TaxTMI 
TaxTMI 
2011 (10) TMI 656
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.... (A) is contrary to law and facts of the case. 2.1. The learned CIT(A) has erred in directing the AO to allow the royalty expenses of Rs. 79,24,250/- as revenue expenditure. 2.2 Having regard to the Hon'ble Supreme Court decision in the case of M/s Jonas Woodhead & Sons (India) Ltd Vs CIT (224 ITR 342) the CIT(A) ought to have confirmed the action of the Assessing Officer. 3.1 The learned CIT(A) has erred in directing the AO to restrict the disallowance u/s 14A to Rs. 4,23,548/- as against Rs. 6,23,548/- disallowed by the AO under Rule 8D. 3.2 The learned CIT(A) relying on the decision of the Mumbai High Court in the case of Mis Godrej Boyce Mfg Co held that Rule 8D was applicable from A.Y 2008-09 only. 3.3 It is submitted that the decision of the Hon'ble High Court relied upon by the CIT(A) has not become final and is being appealed against. 4.1 The learned CIT(A) has erred in directing the AO to delete the disallowance of Rs. 3,38,948/- being provision to exgratia. 4.2 The learned CIT(A) failed to appreciate that the nonstatutory payment is a provision which cannot be allowed unless incurred during the year. 5. For these and other grounds that may be adduced at th....
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....isallowed Rs. 6,23,548/- as against which the ld. CIT(A) has restricted it to Rs. 4,23,548/-. While doing os, the ld. CIT(A) has followed the decision of Hon'ble Bombay High Court rendered in the case of Godrej Boyce Mfg Co, for holding that Rule 8D was applicable from assessment year 2008-09 onwards and not before. The only reason given to dispute this deletion is that the Hon'ble Bombay High Court's decision has not yet become final. But in our opinion, this is not a valid reason for challenging the finding of the ld. CIT(A) who has followed a valid and existing precedent which has not been overruled. There is no contrary decision of the Jurisdictional High Court on this issue. The assessee-company had given the working of expenses amounting to Rs. 4,08,548/- being the interest expenditure on borrowed funds to earn the exempt income and offered a sum of Rs. 15,000/- towards indirect cost totaling to Rs. 4,23,548/- for earning the exempt dividend income. The Assessing Officer has accepted the working for the interest expenditure but has computed the indirect expenses relatable to exempt income by resorting to the provisions of Rule 8D(iii) of the Income Tax Rules which was....
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.... para 7 of the Appellate order relating to disallowance of expenses u/s.14A incurred for earning exempt income, the learned CIT 'A' has restricted the disallowance to Rs. 4,23,548/-. He ought to have fixed the figure at Rs. 3,73,548/- as under: Disallowance towards Direct Cost as accepted by CIT (A) Rs.4,08,548 Disallowance towards Indirect cost as accepted by CIT (A) Rs.15,000 Total disallowance as sustained by CIT (A) Rs.4,23,548 Less: Amount already disallowed by the assessee in the income tax adjustment statement filed along with the return of income Rs.5,000 Net disallowance to be sustained by CIT (A) Rs.3,73,548 It is therefore, prayed that the Hon'ble Tribunal may be pleased to fix the amount to be disallowed at Rs. 3,73,548/- against Rs. 4,23,548/- fixed by the learned CIT (A)." 11. After considering the submission on this issue, we direct the Assessing Officer to finalize the amount to be disallowed at Rs. 3,73,548/- as against Rs. 4,23,548/- fixed by the ld. CIT(A), as there is an error as illustrated by the above working. Accordingly, the cross objection stands allowed. I.T.A.No. 320/Mds/2011 & C.O.52/Mds/2011 - M/s Shriram Transport Fina....
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....ed in allowing the assessee appeal against the Assessing Officer rejecting the assessee claim to allow the sum of Rs. 15,02,237 being provision for derivative contract which was added back by the assessee in the R/I. 5.2 The ld. CIT(A) failed to appreciate that loss on market to market basis is a notional loss which would be contingent in nature and cannot be allowed to be set off against taxable income. 5.4 Having regard to the decisions of the Hon'ble Supreme Court in the case of Goetze (India) Ltd. v. CIT (284 ITR 323) and the Hon'ble Tribunal, Mumbai Bench in the case of Jay Bharat Co-op Housing Society (125 ITO 90), the CIT(A) ought to have confirmed the A.O's actions. 6 For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored. 14. In the cross objection, the assessee has raised following grounds: "Disallowance u/s 14A: 1. The learned CIT 'A' ought to have held that the assessing officer has not established that the provisions of Sec.14A(2) are attracted on the facts of the case. 2. The CIT'A' erred in restricting the addition ....
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....s contended that the stocks of Gujarat State Financial Corporation are not held as capital asset since they have to be acquired to obtain loans from the State Financial Corporation for its trade purposes. It was argued that these amounts have been shown as 'investments' in the Balance Sheet, hence, their real nature is stockin- trade and it would not change. The ld. CIT(A) has restricted the disallowance to Rs. 9,36,400/-. 20. We have considered the rival submissions and have perused the entire material available on record. We have found that the first three items i.e (a), (b) and (c) are Government securities held by the assessee are not as 'investments' but to comply with the SLR requirements applicable to Non-Banking Financial Companies. Thus, they have to be considered as stock-in-trade in view of the decision of Hon'ble Supreme Court rendered in the case of UCO Bank, 240 ITR 355 and Chainrup Sampathram, 24 ITR 481. Therefore, this amount of Rs. 6,20,135/- cannot be brought to tax. We are in agreement with this finding of the ld. CIT(A) but the remaining amount has to be disallowed as has been done by the ld. CIT(A). 21. The next issue of this appeal relates to the direct....
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....sed in earlier assessment year(s) and if so, he has to reduce the total income by the amount already assessed, cannot be treated as incorrect finding. We, therefore, confirm the same and dismiss Ground Nos.4.1 to 4.3 of the appeal. 24. The next issue raised vide Ground Nos.5.1 to 5.4 is in relation to a sum of Rs. 15,02,237/- being provision for derivative contracts, which has been added back by the assessee itself in the return of its income. The facts of this issue are that during the course of assessment proceedings, the assessee requested the Assessing Officer to allow this sum which was added back by the assessee in the adjustment statement, being provision for derivative contract worked out on market to market basis. In doing so, the assessee relied on the decisions of the Hon'ble Delhi Bench rendered in the case of ONGC vs Dy. CIT, 261 ITR 1 and Hon'ble Mumbai Bench in the case of Mashreq Bank vs Dy. CIT, 18 SOT 233. The case of the Revenue is that these contracts are derivative contracts which are foreign currency principal swap transactions and are executed as a hedge against fluctuation in the interest rate payable/receivable and hence, these transactions are spe....
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....ns is known as the forward market. Thus, in case of a forward contract, assessee enters into a legally binding, enforceable contract for purchase of foreign currency on a future date at the predetermined rates. The date and the rate of purchase of the foreign currency are decided at the time of entering into contract. The difference between the forward contract and the exchange rate on the date of entering into the contract has to be recognized as income or expenses, which is ascertained and definite, in terms of the contract and cannot be regarded as notional or contingent. It is clear that the swapping cost incurred by the assessee is capable of determination at the time of execution of the forward contract and such determination does not get postponed. It was a debt owed by the assessee, which accrued on the date of entering into the forward contract itself, though as per the contract, part payment was to be made in succeeding years. The expenditure under the accrual system of accounting had, thus, crystallized on the date of the contract. Normally the ordinary rule is to be applied, namely, revenue expenditure incurred in a particular year is to be allowed in that year. Thus, i....
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.....4 of Revenue's appeal. Our above observations results in dismissal of Revenue's appeal. 28. The cross objection of the assessee is simply in support of the ld. CIT(A)'s order but the disallowance u/s 14A has to be reworked as per the grounds reproduced above. We, therefore, direct the Assessing Officer to consider this working of the assessee while computing the disallowance. Accordingly, this cross objection is allowed to that extent. I.T.A.No. 22/Mds/2011 - M/s Shriram City Union Finance Ltd 29. This appeal of the assessee, for assessment year 2007-08, is directed against the order of the ld. CIT(A), dated 11.11.2010. Following grounds have been raised in this appeal: "I. The order of the CIT 'A' to the extent that it has confirmed i) Disallowance of amount transferred to Statutory Reserve Rs. 17,09,56,664/- in compliance with mandatory provisions of Reserve Bank of India; and ii) Disallowance of bad debts of Rs. 2,12,67,000/- in computing income under the Regular provisions of the Income Tax Act, 1961; and iii) Not allowing the appellant's claim for deduction of Rs. 10,32,43,000/- transferred to Reserve Fund in computing income u/s.115JB of the Income Tax Act, i....
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....y the provisions of Explanation to 36(1)(vii) introduced by the Finance Act 2001. iii) The CIT 'A' has failed to appreciate that the impugned bad debts have been actually written off with corresponding reduction in asset accounts and they are not provisions as erroneously understood and assessed by the assessing officer. He failed to appreciate that the write off satisfies the law as enunciated in: a) Vijaya Bank Vs CIT 190 Taxman 257 [2010] (SC) b) TRF Ltd Vs CIT 323 ITR 397 [2010] (SC) iv) The learned CIT 'A' erred in ignoring the entries in the books of accounts maintained in tune with the provisions of Income Tax Act, which have been maintained regularly and satisfy the provisions of Sec.145 of the IT Act and the fact that assessable income is computed on the basis of income as per these books. v) The learned CIT 'A' failed to appreciate that the appellant has maintained separate books of accounts in terms of the Companies Act complying with the provisions of that Act; that Provision for Bad debts to the extent of Rs. 2,12,67,000/- has been made only in the books maintained separately to comply with the provisions of the Companies Act; and that....
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....by CIT(A) and the Hon'ble Income Tax Appellate Tribunal In its order In I.T.ANo.726/Mds/2010 dated 16.12.2010 has confirmed the order of CIT(A) deleting the addition. III. COMPUTATION U/S 115JB OF THE INCOMETAX ACT, 1961 (A) Amount transferred to Statutory Reserve Rs. 10,32,43,000/- i) The learned CIT 'A' has erred in confirming the action of the assessing officer in not allowing the appellant's claim for deducting the amount of Rs. 10,32,43,000/- transferred to Statutory Reserve as per Reserve Bank of India guidelines in computing income u/s.115JB of the Act. ii) The learned CIT 'A' has failed to appreciate that this amount of Rs. 10,32,43,000/- does not form part of the real income of the appellant on the same grounds as mentioned in the grounds of appeal against the confirmation of disallowance in computation of regular income. On these grounds and other grounds that may be submitted before or during the course of hearing, it is prayed that the appellant's claim I) for deduction of the amount of Rs. 17,09,56,664/- transferred to the Reserve Fund in compliance with the mandatory provisions of RBI Act, II) for allowing bad debts claim of ....
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....ny out of its own volition or gratuitously. iv) The learned CIT 'A' failed to appreciate that in view of the provisions of sec 45 Q of the RBI Act, the Company loses its title over 20% of the income at the threshold itself and it does not form part of the real income of the company, which real income alone is assessable to Income tax. v) The learned CIT 'A' failed to appreciate that it is an expenditure laid out wholly and exclusively for the purpose of carrying its business; that it cannot survive without complying the mandatory provisions of RBI Act; and as such it is an admissible deduction u/s.37 of the Income tax Act incurred on grounds of commercial expediency. vi) The learned CIT 'A' has failed to appreciate that the order of the ITAT 'C' Bench, Chennai, in 1.T.A.No.235/Mds/2009 dated 16.07.09 for the assessment year 05-06, which has been followed by him, has not become final and an appeal against that order has been admitted by the Chennai High Court in Tax Case NO.1264/2009 on 02.02.10. B. Disallowance of bad debts written off Rs. 31,42,42,000/- i) The learned CIT'A' erred in confirming the disallowance of bad debts to the extent of Rs. 31,42,42,000/- made by ....
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....in I.T.ANo. 1160/Mds/2005 for Assessment Year 2001-2002 and this finding has not been challenged by the Department in the Appeals filed in the High Court against that order. vii) The learned CIT 'A' failed to appreciate that what "is provided for" In statutory accounts can be "written off" in the Income Tax Act and vice versa, since the two sets of accounts are maintained to comply with the provisions of different Acts and maintenance of such accounts has been approved by the SC in the UCO Bank's case 240 ITR 355 (SC) at p.367. viii) The learned CIT 'A' has not properly appreciated the import of write off of the debts in the Profit and Loss account. The assessing officer has failed to appreciate that full details of bad debts have been furnished in the assessment proceedings; that they have been written off after proper assessment of each account. ix) The learned CIT 'A' should have been pleased to follow the jurisdictional Appellate Tribunal's orders in the appellant's case itself in its order dated 21.04.2006 for assessment years 1995- 1996 (I.T.ANo.334/Mds/2002), 1996-1997 (I.T.ANo.1168/ Mds/2004), 1997-1998 (I.T.ANo.417/Mds/2001), 1999-200....