TaxTMI 
TaxTMI 
2016 (7) TMI 165
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....triction of claim of Bank interest and finance charges by Rs. 30,10,000/- c) Disallowance of depreciation u/s 32(1) of Rs. 4,46,501/-. d) Addition for delayed remittance of ESI Rs. 42,086/-. e) Disallowance of scientific research expenditure claimed u/s 35(2AB) of Rs. 89,86,705/-. f) Disallowance u/s 40(a)(ia), Rs. 1,00,000/-. g) Disallowance of provisions towards gratuity and leave encashment of Rs. 16,62,000/-. h) Disallowance of claim of "Fluctuation in Foreign Exchange" Rs. 21,48,000/-. 3. Aggrieved with the above order, assessee preferred appeal before the CIT(A). The CIT(A) had confirmed the disallowance made by the AO except giving direction to AO to verify and allow the payments made by the assessee before due date of filing of return of income in respect of ESI payments by relying on the Hon'ble Delhi High Court's decision in the case of CIT Vs. AIMIL Ltd., 321 ITR 508. 4. Aggrieved with the above order, assessee is in appeal before us and has raised the following grounds of appeal: The Honourable Commissioner of Income Tax(Appeals) - IV, Hyderabad erred while passing the order in respect of MIS. VIVIMED ....
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....terest & financial charges at Rs. 5,75,56,000/- and secured loans and unsecured loans have been reported at Rs. 48,30,78,888/- and Rs. 61,15,61,000/- respectively. We would like to submit that this amount represents investment made by the Assessee Company into the Equity Share Capital of its 100% Subsidiary Company. This investment is out of the accruals of the Company. In view of the above explanation, the charging of interest is not in order and invalid. 4. Disallowance of depreciation u/s. 32 on the amount received as Central Investment Subsidy: The CIT(Appeal)-IV erred while passing order, where in confirmed the order of the assessing officer, while reducing the amount of subsidy while allowance of depreciation which is not correct and justified in law. As the amount has already been included in Block of Assets being Gross Value of Assets received I purchased by the company and entered into block as per sec 43(6) being block of assets concept and once the amount is entered into the Block of assets the depreciation on the same has to be allowed till the machinery is disposed and hence the depreciation should be allowed to the Assessee Company.....
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....of the above explanation, the provision made during the year is though is allowed u/s. 40A(7), if same is paid during the year the amount is not allowed as expenditure deductible as expenses. 8. Disallowance of the claim of "Fluctuation in Foreign Exchange" The CIT(Appeal)-IV erred while passing order, where in confirmed the order of the assessing officer while disallowing claim of "Fluctuation of Foreign Exchange" of Rs. 21,48,000/-. The Assessing Officer, while passing the Order, contended that the Assessee debited to Profit & Loss account an amount of Rs. 21,48,000/- towards 'Fluctuation in Foreign Exchange'. The Assessing Officer contended that assessee has been required to explain as to how the claim of "Fluctuation of Foreign Exchange" is allowable u/s. 37(1) of the Act. The The CIT(Appeal)-IV erred while passing order, where in confirmed the contention of the assessing officer that the assessee should furnish details as to whether the forex loss is on account of revenue or capital. We would like to submit that the amount of Rs. 21,48,000/- is allowed u/s. 37(1) as amount is related to the payment made to the creditors and thus be a....
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....s on which tax is sought to be M/s. Vivimend Labs Limited, Hyderabad 11 deducted is not chargeable to tax in India, provisions of S.195 would not apply. In the present case, it is not controverted by the Learned Departmental Representative with cogent evidence that not only the bonds were raised outside India, but the interest payments were also made to non-resident Indians outside India from a bank account held by the assessee outside India. Therefore, since no part of the transaction relating to payment of interest has taken place in India, it cannot be said that interest payment made to non-residents has accrued or arisen in India in terms of S.9 of the Act. In our view, therefore, the provisions of S.195 would not apply to such payments, thereby requiring the assessee to deduct tax at source. We are supported in our view by the decisions cited by the learned counsel for the assessee. Accordingly, we direct the Assessing Officer to delete the disallowance made in this behalf, and allow this ground of the assessee." v) Respectfully following the decision of the coordinate bench, we delete the addition made on this count. B) Restriction of claim of Bank interest and financia....
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....see has mixed funds, i.e. both interest free and interest bearing funds, presumption would be interest free advances are from interest free funds available with the assessee. Applying the same principle, it has to be held that the investment in equity shares were made from out of surplus interest free funds available with the assessee. Further, it is a fact on record that investments in equity shares have been made during the period from 8.10.2005 to 21.1.2007 and not in the previous year relevant to the assessment year under dispute. The Department also has not controverted the contention of the assessee that no disallowance out of interest expenditure was made during the assessment year in which the investment was actually made. In view of the aforesaid factual position, we hold that the disallowance of interest expenditure amounting to Rs. 17,85,000/- is not sustainable. Accordingly, we delete the same, allowing the grounds of the assessee on this issue." Respectfully following the decision of the coordinate bench, we delete the addition made. C) Restriction on claim of depreciation u/s 32: i) The AO noted that the assessee company was sanctioned a subsidy of Rs. 29,76,....
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....ntended to subsidise the cost of the capital or was intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, the specified percentage of the fixed capital cost which is the basis for determining the subsidy being only a measure adopted under the scheme to quantify the financial aid. The contention is that it is not a payment, directly or indirectly, to meet any portion of the "actual cost" but intended as an incentive to entrepreneurs, its quantification determined at a percentage of the fixed capital cost. In Godavary Plywoods' case (supra), the Andhra Pradesh High Court, adopting this view, observed : "Nowhere had the scheme provided as to how the subsidy should be utilised and for which assets. It was open to the assessee to legitimately reduce the cost of land in its books of account to the full extent of the subsidy, in which case the cost of plant and machinery would remain at invoice price uninfluenced by the amount of subsidy. The amount received by way of subsidy could be utilised for any purpose such as acquiring land on which no depreciation was admissible or on plant and machinery or for erection of bu....
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....y is given for each item separately and it would not be open to the assessee to appropriate the subsidy for a purpose other than that for which it was given to him. Even if the assessee wrongly maintains the account books and utilises the entire subsidy against the value of the land to reduce its cost, the ITO would not overlook the matter and would appropriate the subsidy in reducing the cost of the machinery, plant and building for which the subsidy was specifically granted. There is a nexus between the cost of each item and the subsidy under each head." 15. On a consideration of the matter the view that commends itself as acceptable is the one which has commended itself to the majority of the High Courts. It is, of course, not the numerical strength that prevails --- though the fact that a particular view has commended itself to a majority of the High Courts in the country is a matter for consideration --- but the tensile strength of the acceptable logic in those decisions. It is aptly said that "a Judge who announces a decision must be able to demonstrate that he began from recognized legal principles and reasoned in an intellectually coherent and politically neutral w....
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....es. D) Addition on account of delay in payment of PF & ESI: i) AO disallowed the PF & ESI as the assessee made remittance of the amounts after due date, by virtue of insertion of clause (i) of subsection( 24) of section 2 by Finance Act, 1987, even the employees contribution to PF and subscription to insurance etc., are required to be included within the income of the assessee. ii) Ld. AR submitted that all the remittances were made before filing of return of income. He submitted that various Hon'ble Courts has held that PF & ESI remittances made before filing of return of income is deductible as expenditure. iii) Ld. DR relied on the orders of lower authorities. iv) Considered the submissions of the parties and material facts on record. It is a fact that the remittance of PF & ESI were made before filing of return of income. The Hon'ble Supreme Court in the case of CIT Vs. Alom Extrusions Ltd. [2009] 319 ITR 306 (SC) held that the amendments to section 43B brought out by the Finance Act, 2003 with effect from 01/04/2004 are retrospective in nature and would operate from 01/04/1988. Various benches of ITAT and coordinate benches of this Tribunal have followed the abo....
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....l facts on record, we are of the view that assessee had submitted the letter of approval from DSIR, but, the AO had disallowed the expenditure mainly due to no order of approval of DSIR containing the quantification of the expenditure entitled for deduction u/s 35(2AB) of the Act, has been submitted by the assessee. Even before us, assessee had not submitted any records, which is required as per sub-section (3) of section 35(2AB) of the Act but contested that all the relevant approvals were submitted. We remit the issue back to the file of the AO to verify the approval of quantification by the DSIR along with the audited financial records. Assessee may be given proper opportunity of being heard. vii) In the result, this ground of assessee is allowed for statistical purposes. F) Disallowance u/s 40(a)(ia) i) Since the assessee has not deducted tax at source on the remuneration paid to auditors at Rs. 1,00,000/-, the AO disallowed the expenditure claimed towards auditors remuneration. ii) Ld. AR submitted that if there is no default u/s 201(1) by the assessee, no disallowance u/s 40(a)(ia) can be made. He relied on the decision of this Tribunal in the case of Visu Interna....
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.... case of Sri Krishna Pharmaceuticals. On perusal of order, we find that the facts of this case are different. The disallowance was made due to creation of unrecognized gratuity fund, which was allowed u/s 37 as deduction. But, in the present case, disallowance was made due to non filing of proof of payment. We remit this issue back to the file of the AO to verify the proof of payment as claimed by the assessee on payment of gratuity and leave encashment. If found proper, he may allow this expenditure, otherwise, the disallowance may be sustained. Assessee may be given proper opportunity of being heard. Accordingly, this ground is allowed for statistical purposes. H) Disallowance of the claim of Foreign exchange fluctuation: i) The assessee debited to profit & loss account an amount of Rs. 21,48,000/- towards fluctuation in foreign exchange. When AO asked to explain as to how the claim of fluctuation in foreign exchange is allowable u/s 37(1) of the Act, the assessee has not furnished any details as to whether the forex loss is on revenue account or capital account or deferment of repayment of loan. ii) The AO observed that the IT Act contemplates taxing only real income an....
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....made on this count. 6. In the result, appeal of the assessee is partly allowed for statistical purposes. ITA No. 1041/Hyd/2013 by assessee 7. The assessee company has filed its return of income for AY 2008-09 electronically on 26.09.2008 admitting total income of Rs. 5,41,18,320/-. The case was selected for regular assessment and AO completed the assessment u/s 143(3) and determined the taxable income at Rs. 7,63,19,612/- The CIT-III by virtue of power vested on him u/s 263 has called for and examined the assessment records and found that following issues were not examined by the AO in the assessment proceedings: i) Sales Tax penalty of Rs. 12,98,812/- ii) Depreciation on Lift installed in the residence of Director iii) Claimed 100% depreciation on Water Pollution control of Rs. 7,59,65,617/-. 8. The AR of the assessee represented and stated that the assessee preferred appeal against the assessment order u/s143(3) and CIT(A) has given some relief. Still Assessee filed further appeal before hon'ble tribunal and it is pending for adjudication. 9. CIT-III did not accepted the above representation and opined that the issue raised by him is not ....
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....ring assessment proceedings, which are submitted along with the paper book, refer pages 30 to 59 of the paper book. He submitted that AO had already considered the issues which are under consideration by CIT-III. He also submitted before us the questionnaires, which were asked to submit to complete the assessment by AO, which are part of paper book, refer page 70 of the paper book. Ld AR also submitted that it is not necessary that all the issues to be placed on record by AO, it is enough that he verifies the issues and form necessary opinion on these issues and pass the assessment order , relies on the decision of jurisdictional high court in Spectre holdings case. 14. Ld DR relies on the order of CIT. 15. Considered the submissions of both counsels and material facts on record. We are of the view that CIT-III re-examined the issues which are already considered by AO during the assessment proceedings. Since AO already considered and taken a stand and formed an opinion, may be a possible view at that point of time, passed the assessment order based on the above opinion. The CIT-III cannot exercise the revisional jurisdictional power on the same issue again and take different ....