TaxTMI 
TaxTMI 
2016 (11) TMI 366
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....in law, the Ld. CIT(A) erred in restricting the disallowance u/s.14A of the Income-tax Act, 1961 to Rs. 1,00,000/ - as against Rs. 2,93,198/ - made by the AO without appreciating the fact that assessee has made substantial investment during the previous year resulting into earning of exempt income." 2. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting disallowance of Rs. 1.99,00,801/- made by the A.O on account of provision for write off of the Dies without appreciating the fact that no actual sale or disposal of Dies has taken place during the year of the old Dies which has been shown as written off and whereas actually the amount written off is in the nature of provision only." 3. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of debit balance of creditors written off to the tune of Rs. 69,55,477/ - without appreciating the fact that the assessee failed to prove that the advances were given for the purpose of business and efforts were made for collection of the amounts advanced to the sundry creditors." 4. "Whether on the facts and circumstances of the case a....
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....enses have been incurred in relation to earning of income exempt from tax. Thus, the A.O. made the disallowance of expenses relying upon provisions of Section 14A of the Act read with Rule 8D of Income Tax Rules, 1962 @ 0.5% of the average value of investments of Rs. 5,86,39,500/- held by the assessee, which disallowance worked out to Rs. 2,93,198/- u/r 8D(2)(iii) of Income Tax Rules, 1962 and was disallowed by the AO while computing income of the assessee vide assessment order dated 30-12-2009 passed by the AO u/s. 143(3) of the Act. 5. Aggrieved by the assessment order dated 30-12-2009 passed by the A.O. u/s 143(3) of the Act, the assessee filed its first appeal before the ld. CIT(A) whereby the assessee reiterated the submissions made before the A.O. . The ld. CIT(A) observed that the assessee has made investments in mutual funds as well as invested in equity shares of four public limited companies listed on stock exchanges. The A.O. applied Rule 8D of Income Tax Rules,1962 read with Section 14A of the Act , and computed disallowance u/r 8D(2)(iii) of Income Tax Rules, 1962 @ 0.5% of the average value of investment at Rs. 2,93,198/- read with Section 14A of the Act and disall....
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....t applicable prior to assessment year 2008-09 but that the said method provide basis to arrive at an average expense on proportionate basis related to exempt income even for earlier years, the ld. CIT(A) restricted the disallowance of expenses incurred in relation to earning of exempt income , u/s 14A of the Act to Rs. 1 lac and directed the A.O. to give appeal effect after adjusting the disallowance of Rs. 10,000/- voluntarily disallowed by the assessee u/s 14A of the Act, thus confirming the addition to the tune of Rs. 90,000/- , vide appellate order dated 20-03-2014 passed by learned CIT(A) . 6. Aggrieved by the appellate order dated 20-03-2014 passed by the ld. CIT(A), the Revenue is in appeal before the Tribunal. 7. The ld. D.R. submitted that the A.O. has made the disallowance of Rs. 2,93,198/- towards expenditure incurred in relation to earning of exempt income u/s 14A of the Act keeping in view that the assessee has earned dividend income of Rs. 10,19,208/- which was claimed exempt u/s 10(34) of the Act , which is very reasonable disallowance keeping in view the investment portfolio of the assessee which is to the tune of Rs. 702.99 lacs as at 31-03-2006 and Rs. 469.8....
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....plied for the assessment year 2007-08 and earlier years in view of Hon'ble Bombay High Court decision in the case of Godrej and Boyce Manufacturing Company Limited(supra) . Keeping in view of the peculiar facts and circumstances of the case , the ground raised by the Revenue in this appeal w.r.t. computation of disallowance u/s 14A of the Act of the expenditure incurred by the assessee in relation to earning of exempt income lacks merit and is hereby dismissed and we confirm the disallowance u/s 14A of the Act to be at Rs. 1 lacs for the assessment year 2007-08 as sustained by learned CIT(A). Thus, the order of the learned CIT(A) in this regard is upheld/sustained in which we donot find any infirmity in the order of learned CIT(A). This disposes of ground no1 raised by the Revenue. We order accordingly. 10. Ground No. 2 raised by Revenue in this appeal is with respect to the deletion of disallowance by learned CIT(A) of 1,99,00,801/- with respect to addition made by the A.O. on account of provision for write off of the dies without appreciating the fact that no actual sale or disposal of dies has taken place during the year of the old dies which has been shown as written off whe....
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.... to the ones produced at Chakan Plant and accordingly Non-Compete Agreement was entered into. It was submitted that it was the accounting practice of the assessee company to claim deduction of the dies manufactured and consumed during the year. Similarly obsolete dies were being written off from time to time. Attention was invited to Schedule 21 to the Audited Account wherein accounting policies are given which is reproduced as under:- "(iv) Inventories Raw material & Components, Stores and Spares, Die Steel Blocks are valued at cost. Cost is reckoned on "FIFO" basis. Work in Progress is valued at estimated cost. Finished Goods are valued at lower cost or net realizable value. Dies are valued at cost, less amortization/write offs based on expected life and usage till the year end." The assessee also drew the attention of the ld. CIT(A) with respect to the details of stock of obsolete dies for assessment years 2001-02 to 2012-13 and submitted that perusal of these charts will reveal that in between assessment years 2001-02 to 2009-10 the assessee company had manufactured new dies every year which were capitalized and at the same time the assessee company has claimed d....
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....s nothing but the reduction in the value of the inventories of dies carried in the balance sheet of the assessee company from year to year. Secondly , as the assessee company had demerged its Chakan Plant, the dies required and used for the said plant had become obsolete and therefore, the assessee had revalued the said obsolete and unusable dies at the end of the year. It was submitted that the A.O. failed to appreciate that the assessee company had revalued its inventories of dies whereby it was revealed that there were many dies which had become obsolete and unusable and, hence the value of such dies cannot be the cost of the dies reflected in the books of account and accordingly, such dies were valued at the net realisable value which has resulted into write off of the excess cost of dies reflected in the Balance Sheet of the assessee. It was submitted that as the cost of the dies was never claimed as revenue expenditure and the reduction in the value of such dies is required to be allowed as business expenditure or business loss irrespective of such dies were not sold or disposed of. The other reason given by the A.O. was the year of sale the amount realised from such obsolete....
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.... used. He drew our attention to page 46 of the paper book whereby the details have been given w.r.t dies for the year from 2001-02 to 2012-13. He submitted that these dies were sold in the assessment year 2012-13 for Rs. 99,93,400/- and the said amount is offered as income of the assessee company for taxation in the assessment year 2012-13. The learned counsel submitted that the matter may be set aside to the file of the A.O. so that the assessee can produce all the relevant documents for verification before the AO and then the matter may be adjudicated by the AO on merits in accordance with law. Further, the ld. Counsel relied upon the order of the ld. CIT(A). 17. We have considered the rival contentions and also perused the material available on record. We have observed that the assessee has two manufacturing plants, one at Chakan and another at Chinchwad. It is the contention of the assessee that the Chakan plant was demerged and taken over by MFL . It is the say of the assessee that the dies left with the assessee with respect to Chakan Plant cannot be used because of the various restrictions on the assessee due to the non-compete agreement clauses. It is the say of the asse....
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....assessee for internal settlement in respect of valuation of various balance sheet items in the scheme of demerger.Both the grounds are taken together. 19. The A.O. observed that the assessee company has written off debit balances of Rs. 69,55,477/-. The assessee was asked to substantiate the allowability of such write off with necessary evidences. In reply, the assessee submitted that these are advances paid in earlier years and there were no chances of any recovery and accordingly the same have been written off but, however, the assessee failed to give the party-wise details of advances made and also failed to prove that the advances given were for the purpose of business. The assessee also did not submitted any evidence regarding the efforts made for the recovery of these advances before the AO and hence claim of the assessee was rejected by the AO vide assessment order dated 30-12- 2009 passed by the AO u/s 143(3) of the Act. Similarly, the assessee has written off the sundry balances of Rs. 110 lakhs which had arisen at the time of demerger of Chakan Plant and was to be received from MFL. The assessee was asked to substantiate the allowability of such deduction by produci....
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.... year under consideration which were reflected in the assessment years 2002-03 to 2006-07 were submitted. Similarly it was submitted that these advances were given as advance for supply of goods or services in the course of business but the said amount was not claimed as business expenditure in the respective years as the goods were not supplied or partly supplied or the services were not fully rendered and therefore, these amounts were shown as debit balances in the creditors' accounts in the books of the assessee company in the earlier years. In the year under consideration the assessee company finally decided that these amounts are not recoverable from these parties and therefore, these debit balances in creditors' accounts were written off. It was submitted that the shareholders have vide their Resolution adopted the accounts and copy of the Resolution was submitted and claimed that the amount be allowed as deduction while computing income of the assessee. Remand report was called for by learned CIT(A) wherein the AO justified the disallowance of Rs. 69,55,477/- being debit balance of creditors as the assessee did not gave party wise details of advances given to cred....
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....005 , which scheme of demerger was approved by the Hon'ble Bombay High Court on 27th March, 2006. During the course of the business, the assessee company had advanced various amounts from time to time to its Chakan Plant and accordingly in the books of the Chakan Plant for the year ended 31st March, 2006, the amounts were outstanding due and payable to the assessee. Similarly, in the books of the assessee there was ledger account known as Chakan Unit, for the year ended 31st March, 2006. As per the aforesaid ledger account the assessee company had to receive a sum of Rs. 3,91,46,732/- as on 31st March, 2006 from the Chakan Plant. As all the assets and liabilities of the Chakan Unit were demerged and transferred to MFL the assessee company had to receive the aforesaid amount of Rs. 3.91 crores from MFL as the Chakan Plant was taken over by it. As per demerger, the Chakan Plant had sundry debtors as on 31st March, 2005 which were considered to be good of Rs. 17.69 crores. On due diligence made by MFL., it was found that certain debtors of Chakan Plant were not good and hence MFL had refused to take the said debtors as part of the Chakan Plant. Similarly as per the Scheme of Demerger ....
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....ount of Rs. 110 lacs was written off by the assessee. Thus, the ld. CIT(A) accepted the contentions of the assessee and the disallowance of Rs. 110 lacs was deleted by learned CIT(A) vide appellate order dated 20-03-2014. 23. Aggrieved by the appellate order dated 20-03-2014 passed by the ld. CIT(A), the Revenue is in appeal before the Tribunal. 24. Before the Tribunal, the ld. D.R. submitted that the debit balance to the sundry creditors to the tune of Rs. 69.56 lacs were written off and similarly sundry debtors and inventories to the tune of Rs. 110 lacs have been written off. Proper and complete details were not submitted by the assessee before the AO in assessment proceedings nor in remand report proceedings . The ld. D.R. relied on the order of the A.O. and submitted that verification and examination of the both the claims of the assessee is required in this regard by the Revenue as to the legality and validity of the claims filed of the assessee. 25. The ld. Counsel for the assessee, on the other hand, submitted that complete details were given vide paper book pages 48,55 & 57. The ld. Counsel also invited our attention to paper book page 136-37 and 158 and contended....