AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (12) TMI 1141
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...."Based on the facts, circumstances of the case and in law, the Appellant respectfully submits that the learned Commissioner of Income Tax (Appeals) ['CIT(A)'] has: General ground 1. erred in confirming total addition of Rs. 17,87,822/- made by the AO to the income of the appellant; Taxing receipt from the sale of licenses amounting to Rs. 8,74,936/- on due basis 2. erred in confirming the taxability of the licenses received during the year amounting to Rs. 8,74,936/- during the year under appeal, without appreciating that the said receipt was offered to tax in the next year on sale of the license; 3. failed to appreciate that the said practice is consistently followed by the appellant in the past and it has never been disputed by the department; Disallowance of Rs. 9,l2,886/- under section l4A read with Rule 8D 4. erred in confirming the additional disallowance of Rs. 9,12,886 under section 14A read with Rule 8D (i.e. over and above suo-mote disallowance of Rs. 3,32,482/-); 5. failed to appreciate that where the investments have been made from owned funds and not from borrowed funds, interest cannot be disallowed under section 14A read with Rule 8D of the Act; 6.....
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....e for the purchase of mutual funds and shares. Thus , the assessee prayed that the disallowance was correctly made and the same should be accepted. The A.O. rejected the contentions of the assessee and applied provisions of Section 14A(3) of the Act whereby it was held that disallowance under Rule 8D of 1962 Rules should be made even if the assessee claims that no expenditure was incurred in earning exempt income. The A.O. observed that the partners devote some time in selection of purchase of mutual funds or shares or in giving instruction to share brokers. The assessee's premises, offices, its infrastructures were used for investment in mutual funds and purchase of shares. As such, the assessee's claim that no expenditure was incurred for investment was not correct and the same was rejected by the AO. The A.O., accordingly, worked out the total disallowable amount of interest amounting to Rs. 9,43,034/- u/r 8D(2)(ii) of 1962 Rules r.w.r. Section 14A of the Act of 1961, while the AO disallowed Rs. 3,32,482/- towards administrative expenses u/r 8D(2)(iii) of 1962 Rules read with Section 14A of the Act and thus, the total disallowance worked out by the AO comes to Rs. 12,7....
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....d) of the Act in the subsequent year, hence, there is no loss of taxes to the revenue. The ld. CIT(A) rejected the contentions of the assessee and observed that the judgment of Hon'ble Supreme Court in the case of Topman Exports (supra) was given only on the ground that in that case the assesse had already offered the amount on "due" basis, and the department again wanted to tax the gross amount including cost on sale of such licenses in subsequent year, the Hon'ble Supreme court held that as per the provisions of section 28 of the Act of 1961 that under clause (iiib) of the Act, cash assistance received or receivable by any person against exports' under any scheme of the Government of India is by itself income chargeable to income tax under the head profits and gains of business or profession which means that DEPB is a cash assistance receivable by a person against exports under the scheme of Government of India and under clause (iiib) of section 28 of the Act is chargeable to income tax under the head profits and gains of business or profession even before it is transferred by the assessee. Under clause (iiid) of Section 28 of the Act , any profit on transfer of DEPB is char....
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....Co. Ltd., (2010) 328 ITR 81 (Bom) wherein it was held that Rule 8D of 1962 Rules read with section 14A of the Act is not arbitrary or unreasonable but can be applied if assessee's method is not satisfactory. Thus, the additions made by the A.O. was confirmed by learned CIT(A) vide appellate orders dated 08-05-2014 as the assessee failed to challenge the AO's finding that certain administrative expenses by use of partner's time in selection of mutual funds/shares and also use of its office infrastructure for the said purposes must have been certainly incurred . The learned CIT(A) observed that the assessee plea that it has not used borrowed funds for making investment and that the investments were made out of own capital cannot be accepted and hence since Rule 8D of 1962 Rules is applicable w.e.f. assessment year 2008-09 as held by Hon'ble Bombay High court in the case of Godrej and Boyce Manufacturing Company Limited(supra), then as per appellate orders dated 08-05-2014 passed by learned CIT(A) proportionate disallowance for interest has to be made as per Rule 8D of 1962 Rules relying on decisions of Hon'ble Bombay High Court in the case of Godrej and Boyce Manufacturing Company Li....
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....decision of Hon'ble Supreme Court in Topman Exports(supra) was rendered in context of eligibility of premium on sale of DEPB license under Section 80HHC of the Act and decision of Hon'ble Supreme Court in the case of Excel Industries Limited(Supra) is directly applicable wherein it is held by Hon'ble Supreme Court that DEPB license is taxable in the year in which duty free imports are made. Thus, it was submitted that the DEPB license is not taxable in the year of receipt but in the year of utilization i.e. either against import of raw material or sale to third party and till that point it is notional income and not taxable. Further it is was submitted that Hon'ble Supreme Court has held that if the tax rate remains the same and the income is brought to tax in the next year, then it is fruitless to undertake such litigation as nothing is going to add to the public coffers. With respect to the disallowance u/s 14A of the Act read with Rule 8D of the 1962 Ruless the ld. Counsel submitted that the assessee has voluntarily disallowed 0.5% of average investments held whereby Rs. 3,32,482/- was offered for disallowance u/s 14A of the Act r.w.r. Rule 8D(2)(iii) of 1962 Rules. The assesse....
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....opman Exports(supra) was in context of Section 80HHC of the Act and not sale of DEPB license. It was submitted that if the DEPB license is merely accrued, it is not taxable. It is only when the DEPB license is accrued and due, the taxability will arise. It is submitted that there is no escapement of income as the assessee did paid the tax in next year when DEPB license was sold and there is no loss to Revenue and decision of Hon'ble Supreme Court in the case of Excel Industries Limited(supra) is directly applicable. 10. We have considered the rival contentions and also perused the material available on record including the case laws cited by the both parties. We find that the assessee is an exporter and the assessee has applied for DEPB licenses which has been granted for an amount of Rs. 8,74,936/- during the impugned assessment year but the face value of the DEPB licenses granted to the assessee as placed in paper book page 73-92 are to the tune of Rs. 10,94,118/- which need reconciliation so that correct income is brought to tax. The said licenses are placed by the assessee in paper book filed with the Tribunal at page 73-92 . It is the say of the assessee that on receipt of th....
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....e benefits related to entitlement to import duty free raw material under the relevant import and export policy by way of reduction from raw material consumption. According to the assessee, the amounts were excluded from its total income since they could not be said to have accrued until imports were made and the raw material consumed. 6. During the assessment proceedings, the assessee relied upon a decision of the Income Tax Appellate Tribunal in Jamshri Ranjitsinghji Spg. and Wvg. Mills v. Inspecting Asstt. Commissioner [1992] 41 ITD 142 (Bom) and also the order of the Commissioner of Income Tax (Appeals) in its own case for the assessment years 1995-96 to 1997-98. 7. By his order dated 24th March 2004, the Assessing Officer did not accept the assessee's claim on the ground that the taxability of such benefits is covered by Section 28(iv) of the Income Tax Act, 1961 (for short 'the Act') which provides that the value of any benefit or perquisite, whether convertible into money or not, arising from a business or a profession is income. According to the Assessing Officer, along with an obligation of export commitment, the assessee gets the benefit of importing raw ma....
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....these issues had been consistently decided in its favour. It was also noted that for some of the assessment years namely 1993-94, 1996-97 and 1997-98 appeals were filed by the Revenue in the Bombay High Court but they were not admitted. 12. Under the circumstances, the Tribunal affirmed the decision of the Commissioner of Income Tax (Appeals) on the issues raised. 13. The Revenue then preferred an appeal under Section 260-A of the Act in respect of the following substantial question of law: "Whether on facts and in circumstances of the case and in law ITAT is justified in law in holding by following its decision in the case of Jamshri Ranjitsinghji Spg. & Wvg. Mills Ltd. v. Inspecting Asstt. Commissioner [1961] 41 ITD 142 (Bom), that advance license benefit and DEPB benefits are taxable in the year in which these are actually utilized by the assessee and not in the year of receipts." 14. By the impugned order, the High Court declined to admit the appeal filed by the Revenue under Section 260-A of the Act. 15. It was submitted before us by learned counsel for the Revenue that in view of the provisions of Section 28(iv) of the Act, the value of the benefit obtained by the ....
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....so be accompanied by a corresponding liability of the other party to pay the amount. Only then can it be said that for the purposes of taxability that the income is not hypothetical and it has really accrued to the assessee. 21. In so far as the present case is concerned, even if it is assumed that the assessee was entitled to the benefits under the advance licences as well as under the duty entitlement pass book, there was no corresponding liability on the customs authorities to pass on the benefit of duty free imports to the assessee until the goods are actually imported and made available for clearance. The benefits represent, at best, a hypothetical income which may or may not materialise and its money value is therefore not the income of the assessee. 22. In Godhra Electricity Co. Ltd. v. CIT, [1997] 225 ITR 746/91 Taxman 351 (SC) this Court reiterated the view taken in Shoorji Vallabhdas & Co. (supra)and Morvi Industries Ltd. (supra). 23. Godhra Electricity is rather instructive. In that case, it was noted that the High Court held that the assessee would be obliged to pay tax when the profit became actually due and that income could not be said to have accrued when it i....
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....re was no real accrual of income to the assessee in respect of the disputed enhanced charges for supply of electricity. The decision of the High Court was, accordingly, set aside. 27. Applying the three tests laid down by various decisions of this Court, namely, whether the income accrued to the assessee is real or hypothetical; whether there is a corresponding liability of the other party to pass on the benefits of duty free import to the assessee even without any imports having been made; and the probability or improbability of realisation of the benefits by the assessee considered from a realistic and practical point of view (the assessee may not have made imports), it is quite clear that in fact no real income but only hypothetical income had accrued to the assessee and Section 28(iv) of the Act would be inapplicable to the facts and circumstances of the case. Essentially, the Assessing Officer is required to be pragmatic and not pedantic. 28. Secondly, as noted by the Tribunal, a consistent view has been taken in favour of the assessee on the questions raised, starting with the assessment year 1992-93, that the benefits under the advance licences or under the duty entitlem....
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....was in support of the assessee - we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Income Tax in the earlier proceedings, a different and contradictory stand should have been taken." 31. It appears from the record that in several assessment years, the Revenue accepted the order of the Tribunal in favour of the assessee and did not pursue the matter any further but in respect of some assessment years the matter was taken up in appeal before the Bombay High Court but without any success. That being so, the Revenue cannot be allowed to flip-flop on the issue and it ought let the matter rest rather than spend the tax payers' money in pursuing litigation for the sake of it. 32. Thirdly, the real question concerning us is the year in which the assessee is required to pay tax. There is no dispute that in the subsequent accounting year, the assessee did make imports and did derive benefits under the advance licence and the duty entitlement pass book and paid tax thereon. Therefore, it is not as if the Revenue has been deprived of any tax. We are told that the rate of tax remained the same in the present assessment ye....