TaxTMI 
TaxTMI 
TaxTMI 
2016 (8) TMI 898
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....hat the order passed by the AO u/s 143(3) is neither erroneous nor prejudicial to the interest of the revenue. 2.1 That all the issues raised by the ld CIT, a possible view has been taken by the Assessing Officer while passing the order u/s 143(3). Hence neither the order is prejudicial nor erroneous to the interest of revenue. 2.2 The Ld CIT ought to have held that the order passed by the AO was neither erroneous nor prejudicial of the interest of Revenue in respect of the following issues in the light of details/documents and submission made before him during the assessment proceeding: o STT expenses of Rs. 19.42,671/-[for disallowance U/S 14A vis-à-vis Rule 8D] o Interest expenses of Rs. 2,00,83,931/- for disallowance u/s 14A vis-a-vis Rule 8D (Net of interest received). o sale of brands for Rs. 115,88,77,800/- o Delayed payment of PF and ESIC of Rs. 27,79,2711- [employees' contribution]. o Clinical support expenses Rs. 186,72,348/- o Applicability of Sec.94(7) and 94(8) on sale of shares/mutual fund o Computation of profit u/s 115JB of the Act 2. Similar grounds have been taken for the A.Y. 2010-11: 1. On the facts and circumstances of the case, the....
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....or working out disallowance u/s 14A r.w Rule 8D pertaining to exempt income the AO ought to have gathered these basic details. The disallowance under the head "Direct expenses" under Rule 8D hinged upon collecting this vital information. If this information was not there A.O ought to have considered entire amount of STT (Rs.19,42,671/-) as direct expenses for disallowance u/s 14A r.w Rule 8D of the Act. 4. In respect of interest expenses, the CIT observed that the AO failed to consider the fact that assessee has debited interest amount of Rs. 2,00,83,931/- even though this is lesser than last year, it was the duty of the AO to verify how the borrowed funds has been utilized. The source of investment in F&O Transactions (Margin Money & Mark to Market amount etc) and for L& T shares was required to be examined. Further, how much out of the interest borrowed funds has been utilized to earn exempt income was also highly relevant enquiry. The disallowance u/s 14 A r.w. Rule 8D cannot be worked out in absence of these basic details. 5. With regard to netting of interest, the CIT observed that the A.O also worked out "net interest" paid for working out disallowance u/s 14A. This is high....
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....e expenditure incurred would fall within the mischief sought to be plugged under Explanation to section 37 of the Act, i.e. whether expenditure is of inadmissible nature as per the Circular No.5/2012 issued by the Medical Counsil of India prohibiting expenditure incurred by pharmaceutical companies which is in the nature of freebees given to / enjoyed by medical practitioner or professional associations The AO has allowed the expenditure of Rs. 1,86,72.348/- without verifying what sort of expenditure has been incurred under this head. 8. With regard to the deduction claimed on account of payment of PPF/ESIC, the CIT observed that the AO also allowed deduction of Rs. 27,79,271/- being delayed payment of PPF/ESIC. The AO ought to have considered the fact that section 43B does not apply to payments made u/s 36(1)(va) of the Act. Needless to say, AO without examining tile relevant provisions the A.O allowed the claim of the assessee. It is the contribution of the employer towards PPF, Superannuation Fund, etc. which will be covered by section 43B of the Act but not the contribution of the employees. Without examining these facts AO allowed the claim of deduction even when payments wer....
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.... interest free funds is squarely covered by the decision of jurisdictional High Court in the case of Reliance Utilities, 178 taxmann 135. Accordingly no infirmity can be found in the order of AO insofar as assessee was having sufficient interest free funds available with its as well as funds received on sale of brands which was interest free. Our attention was invited to the funds received on sale of brands amounting to Rs. 113 crores which was interest free and out of which assessee has used the funds as investment in securities. As per the ld. AR since no interest bearing funds were invested, the order of AO cannot be said to be erroneous for not disallowing interest. 14. With regard to sale of brand being treated by CIT(A) as business receipts, it was contended by ld. AR that issue is covered in favour of the assessee by the order of the Tribunal in assessee's own case for assessment year 2000-2001, order dated 1st March, 2007, wherein the Tribunal held that profit on sale of brand is capital receipt and not business receipt. As per ld. AR in view of the decision of Tribunal in assessee's own case decided in its favour and revenue has also not filed any further appeal to the Hi....
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....he Act and there was also incorrect computation of book profits. Armed with the report of the audit party, the Commissioner of Income-tax issued a notice u/s. 263 of the Act setting aside the assessment completed u/s. 143(3) of the Act and directing the AO to re-do the same de novo on the aforesaid issues. Rejecting the objections filed, the CIT passed his order u/s. 263 of the Act on 31.03.2014. In this order the CIT directed the Assessing Officer to examine: i) whether STT expenses were incurred on F & O transactions or sale of L&T shares; ii) interest expenses of Rs. 2,00,83,931/- to find out whether there was direct use of borrowed funds by the assessee for the purpose of investment in shares; iii) the correctness of the treatment given to the amount of Rs. 112,66,38,753/- received on sale of brands as capital gain as against business income though it was not an issue in the show cause notice issued; iv) assessability of the amount of Rs. 1,86,72,348/- claimed under the head clinical support services; v) applicability of the provisions of S. 94(7) and 94(8) of the Act on sale of shares/mutual fund; and vi) the computation of profit u/s. 115JB of the Act. 19. From the rec....
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....-free. No interest bearing funds has been invested for earning the exempted income. As the investment is made after the receipt of the sale proceeds of brand i.e. interest-free fund. The utilization of the interest-free fund is for investment. Therefore the interest bearing fund has not been utilized for making investments and the investments are made out of the interest-free fund available with the company by way of share capital and reserves & surplus which stood at Rs. 89.75 crores as on 31/3/09. 22. As per the decision of Bombay High Court in the case of Reliance Utility reported in 178 Taxman 135 whereby if the company's funds are interest free more than the investments the question of disallowing interest u/s.14A does not arise. Accordingly there is no merit in CIT's order directing disallowance of interest u/s. 14A. In view of the sufficiency of own funds, no disallowance is warranted. We direct accordingly. 23. With regard to the observation of CIT regarding the treatment of amount received on sale of brands we found that during the year the company sold its two medical brand(s) "Anaforthan" and "Cefi" Agreement(s) of the same are placed on record according to which t....
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....he same was not taxable but the legislature in its own wisdom taxed the sale of brand etc as capital gain u/s. 55(2) of the Act. Thus, the assessee has correctly offered the tax on sale of brand as LTCGs insofar as brands was developed by the assessee company and not purchased. From the record we also found that as per agreement dated 15.04.2008 for sale of brand, separate consideration has been assigned to trade-marks, knowhow fee and non-compete fee. The said Trademarks were duly registered and said fact has also been accepted by the CIT on Pg. 9 of his order. The said brands are capital assets of the company built over a period of time, i.e. the brand was developed by the company itself and not purchased. We also found that all the agreements were placed before the CIT. The assessee has also filed submission before the CIT to justify the value assigned towards trade-marks, knowhow fee and non-compete fee. It is also relevant to mention here that a similar nature of sale of brand was made by assessee in A.Y. 2000-01 wherein the assessee had treated the sale of brand as income from capital gain and the treatment given by assessee was upheld by the Hon'ble Tribunal in assessee&....
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.... details with regard to clinical support expenses were verified by the AO in the original assessment proceedings. Since the AO was satisfied with the details furnished by assessee vide letter dated 15.12.2011, no addition was made by the Assessing Officer on account of clinical support expenses. 29. With regard to the explanation to S. 37(1) of the Act, the CIT has nowhere pointed out as to how the said explanation will be applicable to the assesse. In so far as the direction issued to disallow the said payment on the basis of Circular No. 5/2012 (F. No. 225/142/2012-ITAII) dated 01.08.2012 issued by the Income Tax Department, Government of India after considering the guidelines issued by the Medical Council of India and as per Explanation to S. 37 of the Act, we found that this very issue was considered by a co-ordinate Bench of this Hon'ble Tribunal in the case of Syncom Formulations (I) Ltd. v. DCIT in ITA Nos. 6429 and 6428/Mum/2012 for AYs. 2010-11 and 2011-12 dated 23.12.2015 and it was held that the said circular was applicable from AY. 2013-14 only. The relevant assessment years under consideration are A.Ys. 2009-10 and 2010-11. Accordingly, the circular is not applica....
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....s the case may be; (b) "securities" includes stocks and shares; (c) securities shall be deemed to be similar if they entitle their holders to the same rights against the same persons as to capital and interest and the same remedies for the enforcement of those rights, notwithstanding any difference ill the total nominal amounts of the respective securities or in the form in which they are held or in the manner in which they can be transferred; (d) "unit" shall have the meaning assigned to it in clause (b) of the Explanation to section 115AB. As per the above section, Short Term Capital Loss incurred when units (and not shares) are purchased within 3 Months prior to the date on which additional units are allotted and subsequently are sold within 9 Months after the date while holding on to all or any of the additional units allotted, is not to be allowed to the extent of the market value of the additional units as on the date they are allotted. Units as referred to in the above section means units of a Mutual Fund as specified in section 10(23D) of the Act. However in the assessee's case, the assessee had purchased shares of L&T Ltd on which Bonus shares were received and....
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....d, the provisions of S. 94(7) of the Act will not apply. 35. With regard to CIT's observation regarding loss incurred on sale of L & T shares, though the CIT agrees that the provision of section 94(8) will not apply to the shares. The assesse is free to carry out tax planning within the provisions of law. A similar argument was raised by the department before the Hon'ble Supreme Court in case of CIT vs. Walfort Shares and Stock brokers Ltd (326 ITR 1) wherein, even after considering the decision in the case of McDowell & Co. Ltd., it was held by Supreme Court that mere tax planning without any motive to avoid taxes is not a colourable device. 36. In view of the above, we do not find any merit in CIT's direction for applying provision of section 94(7) and 94(8) of the IT Act for disallowing loss incurred on L & T shares. 37. Issues with regard to the delayed payment of PF and ESI and computation of book profit u/s. 115JB was not pressed by the ld. AR, the same are therefore dismissed in limine as not pressed. 38. In the result, the assessee's appeal for A.Y. 2009-10 is allowed in part in terms indicated hereinabove. ITA No. 2702/Mum/2014 (A.Y. 2010-11) 39. In this order al....
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....transactions STT was paid and was claimed as expenditure. The Assessing Officer in the order passed u/s 143(3) r.w.s. 263 of the Act disallowed the STT expenses and the same were added to the total income of the assessee. As per the directions of the CIT, the Assessing Officer also examined the issue of disallowance u/s 14A r.w.r. 8D of the Act. While computing disallowance of direct expenditure incurred for the purpose of investment as per Rule 8D(2)(i), the Assessing Officer again considered the said amount of STT paid leading to double disallowance of the same amount i.e. i) Disallowance of STT in the main computation of income ii) Disallowance of STT while computing disallowance u/s 14A r.w.r 8D of the Act by considering such amount as direct expenses for the purpose of making disallowance u/s. 14A r.w.r. 8D of IT. Rules. 42. In view of the above, we direct the A.O. to delete the double disallowance so made. 43. With regard to the disallowance of interest u/s.14A r/w Rule 8D, we found that the CIT had directed the Assessing Officer to ascertain as to whether there was direct use of borrowed funds or not. As per the statement of availability of own funds given before the low....