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TaxTMI 
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2017 (1) TMI 1287
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....s appeared on behalf of Revenue. 2. All the appeals are heard together to pass a consolidate order for the sake of convenience. First we take up assessee appeal in ITA No.813/Kol/2009 for A.Y. 05-06. 3. Grounds raised by assessee per its appeal are reproduced below:- "1. That on the facts and circumstances of the case, the learned CIT(Appeals) erred in directing the Assessing Officer to compute the disallowance under section 14A of the Income Tax Act, 1961 ('the Act) in accordance with Rule 8D of Income Tax Rules, 1962 in respect to exempt income of Rs. 21,82,188/- both under the normal provisions (other than section 115JB of the Act) and while computing book profit under section 115JB of the Act. 2. That on the fact and circumstances of the case, the learned CIT(Appeals) erred in confirming the disallowance of Rs. 5,60,337/- relating to advances written off without appreciating the fact that the said advance was given in the ordinary course of business of the appellant. 3(a) That on the facts and in the circumstances of the case, the CIT(Appeals) erred in confirming the addition made by the Assessing Officer of increasing the value of closing stock by Rs. 335,64,496/- 3....
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..... Being aggrieved by this, assessee has come up in appeal before us. 7. Before us Ld. AR for the assessee filed paper book which is running from pages 1 to 79 and stated that Rule 8D of the IT Rules came into effect from 24.03.2008 which is prospective in nature and it has no application for the year under consideration before us. He further prayed before the Bench to direct the Authorities Below by making the disallowance @ 1% of dividend income after having reliance on the jurisdictional High Court Judgment.On the other hand, Ld. DR for the Revenue agreed to the submission of Ld. AR and raised no objection if the disallowance is restricted to 1% of the dividend income. 8. We have gone through the submissions made by both the sides and order of the lower authorities as well as materials available on record. In the present case the ld. CIT(A) has directed the AO to compute the disallowance in relation to dividend income as per the provisions of section 14A of the Act and rule 8D of Income Tax Rules 1962. However at the outset we find that the rule 8D came into force with effect from 24th March 2008. The instant case before us pertains to the assessment year 2005-06 and therefore....
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....of the said Explanation 1 to Section 115JB of the Act if they are debited to the Profit and Loss Account and from such profit item Nos. (i) to (viii) of the Explanation are to be reduced. The figure arrived at after the above exercise is the book profit of the assessee for the relevant previous years. The explanation 1 clause (f) to Section 115JB(2) of the Act stipulate that amount of expenditure relatable to any exempt income, other than Section 10(38) of the Act, is liable to be added back to net profit shown in Profit and Loss Account if the amount referred to therein is debited to Profit and Loss Account. Now, we refer to Section 14A of the Act which reads as under: "Expenditure incurred in relation to income not includible in total income For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by assessee in relation to income which does not form part of the total income under this Act.] The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescrib....
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....ome and is held to be applicable w.e.f. assessment year 2008-09 as held by Hon'ble Bombay High Court in Godrej and Boyce Manufacturing Limited(supra) decision . The impugned assessment year under appeal in present case is also assessment year 2008-09 and hence Section 14A of the Act read with Rule 8D of Income Tax Rules,1962 is applicable. It is axiomatic to assume that the amount computed under Section 14A of the Act read with Rule 8D of Income Tax Rules, 1962 shall have no reference to the amount debited to the Profit and Loss Account and there cannot be any disallowance u/s 14A of the Act unless the expenditure is debited to Profit and Loss Account and hence disallowance u/s 14A is always a part of expenditure debited to the Profit and Loss Account. In the instant case under appeal, the AO has disallowed the expenditure of Rs. 73,07,018 computed u/s 14A of the Act read with Rule 8D of Income Tax Rules , 1962 for computing normal taxable income which is upheld by the CIT(A) in the first appeal and the same amount of expenditure of Rs. 73,07,018/- is added to compute book profit u/s 115JB of the Act which is computed u/s 14A of the Act read with Rule 8D of Income Tax Rules,196....
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....enture company with Union Trading Company of Dubai at the Dubai free trade zone and the payment in question was made for obtaining some regulatory permission from the FTZ authority there. Subsequently, it dropped the idea of the JV and the amount was written off. Even if the JV had taken off, such a payment would not be revenue expenditure. When the JV did not take off and the amount was written off, there is no way it can be allowed as a deduction. It was a capital loss. Similarly, the other advances are also prima-facie not on revenue account and, hence, deduction for the same cannot be allowed. In view of the foregoing discussion, the addition related to loans and advances written off is confirmed. As a result, the amount of addition under this item is reduced to Rs. 5,60,337.-." Aggrieved by this, assessee has come up in appeal before us. 12. Before us Ld. AR for the assessee submitted that all the loan advances were provided in the course of assessee's business and drew our attention on page 23 of the paper book where the necessary details of the advances were placed. On the other hand, Ld. DR submitted that a sum of Rs. 4,41,089/- was written off on account of regulatory fe....
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....ers, agrochemicals and plastic raw materials, desires to have a common-user bulk liquid storage terminal facility at Hamriyah Free Zone (HEZ), located in Hamriyah Port Dubai for receipt storage and distribution of liquid products (hereinafter referred to as the "Project". IMC, the leading independent bulk liquid/gas storage company in India having vast experience in construction and management of third party bulk liquid storage tank terminals, is interested to construct and mange the proposed bulk liquid storage terminal at HFZ IMC & UTC will have a JV setup to build and operate a common bulk chemicals storage facility as mentioned below. UTC and IMC have expressed their desire to form a Joint Venture Company (JVC) for setting up the Project and expressed their willingness to co-operate and carry out their respective roles in the project. NOW therefore, UTC and IMC hereby enter into a Memorandum of Understanding JVC thereafter referred to as MoU and agree to the following terms." Thus from the above it is clear that the assessee wanted to expand its existing business by establishing the joint venture company with UTC in Dubai. In view of the above it can be inferred that the....
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....d classes, may have to be considered in finding out the true assessable profits or gains. This was laid down by the Privy Council in Commissioner of Income-tax v. Chitnavis, and has been accepted by this court. In other words, section 10(2) does not deal exhaustively with the deductions, which must be made to arrive at the true profits and gains. To find out whether an expenditure is on the capital account or on revenue, one must consider the expenditure in relation to the business. Since all payments reduce capital in the ultimate analysis, one is apt to consider a loss as amounting to a loss of capital. But this is not true of all losses, because losses in the running of the business cannot be said to be of capital. The questions to consider in this connection are: for what was the money laid out? Was it to acquire an asset of an enduring nature for the benefit of the business, or was it an outgoing in the doing of the business? If money be lost in the first circumstance, it is a loss of capital, but if lost in the second circumstance, it is a revenue loss. In the first, it bears the character of an investment, but in the second, to use a commonly understood phrase, it bears th....
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....de to the decision in the case of CIT Vs. Indian Mica Supply Co. P. Ltd. reported in (1970) 77 ITR 20 (SC) wherein the Supreme Court in considering a claim for deduction on arrear lease rents, ascertained subsequently consequent to a compromise arrived in the suit and paid in the relevant assessment year. Expenditure made for construction/acquisition of new facility subsequently abandoned at the work-in-progress stage is allowable as incurred wholly or exclusively for the purpose of assessee's business. Similarly we also find support & guidance from the judgment of Hon'ble Calcutta High Court in the case of CIT Vs. woodcrafts products Limited reported in 217 ITR 862 wherein it was held as under : "In the case before us, the expenditure is also for the expansion of the existing business, though the object of manufacture, in contemplation of which the expenditure was incurred, did not materialize. May be, the expenditure is abortive but its character as a revenue expenditure incurred for the purpose of the expansion of the existing business is not disputable and has not been disputed either. In the premises, the second question is answered in the affirmative and in favour of the....
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....ssee. 16. Aggrieved, assessee preferred an appeal before Ld. CIT(A) whereas assessee submitted that as per Accounting Standard-11 "The Effects of Changes in Foreign Exchange Rates" issued by ICAI the events occurring after the balance-sheet date to the extent confirming the adjustment at the balance-sheet date should be taken into consideration. Accordingly, assessee submitted that sale price at which the goods were sold is an event occurring after the date of balance-sheet date and therefore the same can be adopted for the valuation of closing stock. The assessee also submitted that the closing stock should have been valued by applying the conversion rate of Rs. 43.95 which is prevailing on the balance sheet date i.e. 31.3.2005. The assessee also submitted the monthly Market Report from Tate & Lyle for the month of April 2005 where it was shown at 90$ per metric ton in Karanchi & Bangkok. The assessee further submitted that molasses is perishable commodity and accordingly quality and market rate of the same came down. The assessee also challenged the addition of Rs. 60 lacs on the ground that no material was brought on record for such addition. However, Ld. CIT(A) disregard....
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....he assessee, it is noted that the assessee incurred expenditure incurred of Rs. 1.41 crores on handling expenses, Rs. 4.75 crores on freight expenses and Rs. 8.43 crores on insurance. A sample of high-sea sales contract, furnished by the assessee, sows that the purchaser had to bear entire clearing expenses. Since the sales were effected on the high-sea, the assessee should not normally be required to incur any significant expenditure by way of handling, freight etc., in respect of the goods sold. In other word, it appear that the expenditure related mainly to the stock for which delivery was taken by the assessee. Of course, the assessee did non-trading business also during the previous year, apart from trading in molasses, and would have incurred expenditure in connection therewith. In the ultimate analysis, since the assessee ha not furnished the relevant figures, it is a question of estimate and, since the estimate of the Assessing Officer cannot be faulted, the addition has to be confirmed. 4.8 The assessee has claimed that the depreciation of the INR vis-a-vis USD at the end of the previous year as compared to the time the stock had been purchased should be factored into th....
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....n page 68 of the paper book. The ld. AR also submitted that there was no market available to determine the value for the closing stock. Moreover there is controlled market in India for the molasses and which are governed by the State Governments. Therefore the assessee chose to sale the same in the foreign market. 17.1 On the other hand, Ld. DR submitted that molasses are used in sugar industry and the market value can be easily ascertained from such sugar industry. The molasses are used by different industries for additives and also by country liquor. He further submitted that the molasses can be stored about 20 years and therefore the argument placed by Ld. AR that molasses is a perishable item is not tenable. Besides, the assessee was well equipped with the storage facilities where the molasses could have been easily stored. As per Sec. 145A of the Act the cost incurred in relation to purchase of the goods such as freight, insurance etc., should be added in the value of closing stock. The cancellation letter has no meaning as it is just piece of paper and there is no agreement with the party. Lastly, he vehemently relied on the order of Authorities Below. 18. We have heard the....
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.... that the accounting standard 2 issued by the ICAI also requires determination of the net realizable value of the closing stock on the balance sheet date. The relevant extract of the AS 2 reads as under : "23. Estimates of net realisable value also take into consideration the purpose for which the inventory is held. For example, the net realisable value of the quantity of inventory held to satisfy firm sales or service contracts is based on the contract price. If the sales contracts are for less than the inventory quantities held, the net realisable value of the excess inventory is based on general selling prices. Contingent losses on firm sales contracts in excess of inventory quantities held and contingent losses on firm purchase contracts are dealt with in accordance with the principles enunciated in Accounting Valuation of Inventories 15 Standard (AS) 4, Contingencies and Events Occurring After the Balance Sheet Date. 24. Materials and other supplies held for use in the production of inventories are not written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost. However, when there has been a decline in the p....
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.... in confirming the order of AO for charging the interest under section 234B of the Act under the normal provisions and MAT provisions of the Act. 21.1 At the outset we find that interest under section 234B is consequential in nature and will be levied under both normal & MAT computation of Income. However if the liability to pay the advance tax arises due to the amendment in the Act retrospectively, then there would be no interest u/s 234B & 234C of the Act. In this connection we are putting our reliance in the case of Emami Limited Vs. CIT reported in 337 ITR 470 wherein it was observed as under : "A mere reading of relevant provisions leaves no doubt that the advance tax is an amount payable in advance during any financial year in accordance with the provisions of the Act in respect of the total income of the assessee which would be chargeable to tax for the assessment year immediately following that financial year. Thus, in order to hold an assessee liable for payment of advance tax, the liability to pay such tax must exist on the last date of payment of advance tax as provided under the Act or at least on the last date of the financial year preceding the assessment year in q....
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....il according to the then law of the land. In a case like the present one where on the last date of the financial year preceding the relevant assessment year, the assessee had no liability to pay advance tax, he could not be asked to pay interest in terms of s. 234B and s. 234C for default in making payment of tax in advance which was physically impossible.-Star India (P) Ltd. vs. CCE (2006) 201 CTR (SC) 63 : (2006) 280 ITR 321 (SC) applied; Jt. CIT vs. Rolta India Ltd. (2011) 237 CTR (SC) 329 : (2011) 49 DTR (SC) 346 : (2011) 330 ITR 470 (SC) distinguished." Respectfully following the above ratio laid down by the Hon'ble High Court, we are inclined to allow the grounds raised by the assessee in terms of above. 22. In view of the above, the assessee's appeal is partly allowed to the extent indicated above. Coming to Revenue's appeal in ITA No. 781/Kol/2009 for A.Y 05-06. 23. First issue raised by Revenue in this appeal is that Ld. CIT(A) erred in directing the Assessing Officer to hold the profit arising out sale-purchase of shares as capital gain. 24. The assessee in its original return has shown the profit earned on sale of investment as business income but the same was revis....
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....oked into by the AO. Accordingly the ld. DR prayed to restore the issue to the AO. On the contrary, the ld. AR for the assessee reiterated the submission as made before the ld. CIT(A). The ld. AR drew our attention on page 38 of paper book where the assessment order for the AY 2003-04 was placed and demonstrated that the capital gain income was accepted by the AO. There was no finding given by the Hon'ble ITAT in the case of assessee in ITA No. 868/Kol/2006. The ld. AR supported the order of Ld. CIT(A). 27. We have heard the rival contentions of both the parties and perused the materials available on record. The crux of the issue in the instant case is that AO has treated the income of the assessee shown under the head capital gain as income under the head of Business & profession on the reasoning that the Hon'ble ITAT in the own case of the assessee in ITA No. 868/Kol/2006 for assessment year 2001-02 dated 28.02.2007 directed to treat the income on purchase and sale of share as business income. However on perusal of Hon'ble ITAT order we find that the assessee in that year has claimed the loss on the sale of investment as business transaction which was accepted by the AO. But sub....
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....dustries Ltd. 288 (AT) ITR 63 in support of the contention that such provision cannot be added back to the book profits. Respectively following the decision of the Hon'ble ITAT, Kolkata on this issue, it has held that the amount should not be added back in the computation of book profits." Being aggrieved by this, Revenue has come up in appeal before us. 31. At the outset, Ld. AR for the assessee fairly conceded that the issue is squarely covered in favor of Revenue and against the assessee by virtue of the amended provision of Sec. 115JB of the Act. Ld. DR for the Revenue agreed to the submission of the assessee. 32. We have heard the rival contentions of both the parties and perused the materials available on record. There is amendment in section 115JB of the Act which reads as under:- "[Special provision for payment of tax by certain companies. 115JB.(1) Explanation[1],- For the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by- ... .... Explanation 2-For the purposes of clause (a) of Explanation 1, the amount of income-tax shall incl....
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....) that on account of what income the refund was granted, therefore treating the same as "business income" is not correct. He further submitted that there was no evidence to establish the nexus between FDR and bank guarantee to show that those were taken for the purpose of assessee's business. It is also not clear at what time the FDR were made whether those were made at the time of bank guarantee or some other time. Ld. DR relied in the case of CIT Vs. V.P. Gopinathan 248 ITR 479 and CIT Vs. Shri Ram Honda Power Equip & Ors 289 ITR 475 and he supported the assessment order. On the other hand, Ld. AR for the assessee submitted that assessee has to participate in various tenders for which bank guarantee is very much required. Therefore, FDR was made so that assessee could obtain the bank guarantee. He in support of assessee's claim also submitted a sample copy of bank guarantee which is kept on the record. He supported the order of Ld. CIT(A) in this point and submitted that Ld. CIT(A) was correct in giving relief to assessee. 37. We have heard the rival contentions of both the parties and perused the materials available on record. From the forgoing discussion we find that the AO t....
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....rect nexus between this income and income of business of undertaking. Though it does not par take character of a profit and gains from sale of an article, it was income which was derived from consideration realized by export of articles. In view of definition of 'Income from Profits and Gains' incorporated in Subsection (4), assessee was entitled to benefit of exemption of said amount as contemplated u/s 10B of Act. Therefore, Tribunal was justified in extending benefit to aforesaid amounts also. We do not find any merit in these appeals. Therefore, first substantial question of law raised in ITA No.428/2007 was answered in favour of revenue and against assessee and first substantial question of law in ITA No.447/2007 was answered in favour of assessee and against revenue. While computing eligible deduction u/s 10B/10A of Act entire profits including interest earned from business of undertaking was to be considered." 37.1 We also rely in the case of CIT Vs. Triputi Wollen Mills Limited reported in 193 ITR 0252 where the Hon'ble High Court of Kolkata has held as under : "From the narration of facts, it will be evident that the finding of the Tribunal that the assessee in fact....
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....rantee to be offered to KPTCL in order to acquire a contract work, interest on such fixed deposits cannot be treated as an income from other sources and has to be treated as business income-CIT vs. Govinda Choudhury & Sons (1994) 116 CTR (SC) 61 : (1993) 203 ITR 881 (SC) relied on" In this connection we also find guidance and support from the judgment of Hon'ble Supreme Court of India in the case of CIT Vs. Govinda Choudhury & Sons reported in 203 ITR 881. The relevant extract of the order is reproduced below : "The assessee is a contractor. His business is to enter into contracts. In the course of the execution of these contracts he has also to face disputes with the State Government and he has also to reckon with delays in payment of amounts that are due to him. If the amounts are not paid at the proper time and interest is awarded or paid for such delay, such interest is only an accretion to the assessee's receipts from the contracts. It is obviously attributable and incidental to the business carried on by him. It would not be correct, as the Tribunal has held, to say that this interest is totally de hors the contract business carried on by the assessee. It is well -sett....
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....the activity of assessee, but it is the income which is derived in the course of the business. Hence the ground raised by the Revenue is allowed partly. 38. Now we shall take the Revenue's appeal in ITA No.370/Kol/2012 for A.Y. 2006-07. 39. First issue raised by Revenue in this appeal is that Ld. CIT(A) erred in treating the interest from bank for Rs. 95,48,755/- and interest of income tax refund for Rs. 38,50,185/- as business income. 40. We have already discussed the same issue embodied in Para 38 of this order and taking a consistent view in assessee;'s appeal in ITA No.813/Kol/2009, Revenue's issue is partly allowed in terms of the above. 41. In respect of issue No.2 raised by Revenue is that Ld. CIT(A) erred in deleting the addition made by AO on account of leave encashment for provision of Explanation (1)(c) to Sec. 115JB of the Act. 42. Assessee, in the year under consideration has created the provision for leave encashment of Rs. 34,68,915/- which was not added in the book profit. During the course of assessment proceedings, AO treated the same as provision made for unascertained liability in terms of the provision of Explanation (c) to Sec. 115JB of the Act. According....
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....d that on similar issue for the assessment year 2005 6 the learned CIT a allowed the relief to the assessee The learned DR in rejoinder submitted that the legal position with regard to the provision for leave encashment is clear but the same should be based on valid documents and those documents have not been verified by the AO. 45. We have heard the rival contentions and perused the materials available on record. From the foregoing discussion we find that the assessee has claimed provisions towards leave encashment which was disallowed by the AO while computing the profit under the provisions of MAT on the ground that it represents the unascertained liability. However the learned CIT(A) treated the same as ascertained liability and allowed relief to the assessee. Admittedly as per the provisions of section 115JB of the Act the provisions representing the unascertained liability will be added to the Book Profit under the provisions of section 115JB of the Act. The provisions for leave encashment is ascertained liability as held by the Hon'ble Supreme Court in the case of Bharat Earth Movers Vs. CIT reported in 245 ITR 428. The relevant extract of the order is reproduced below : ....
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....erved as under : "Section 115JB of the Income-tax Act, 1961 - Minimum alternate tax [Leave encashment provision] - Assessing Officer treated provision made by assessee towards leave encashment of employees as in respect of unascertained liability and added same in book profit for purpose of levy of MAT - Tribunal deleted addition and held that provision made was in respect of ascertained and definite liability - Whether since issue was already stand answered by decision of Apex Court in Bharat Earth Movers v. CIT [2000] 112 Taxman 61, appeal filed by revenue was to be dismissed - Held, yes [Para 3] [In favour of assessee]" From the above judgment of the Hon'ble Supreme Court, the provisions for the leave encashment is ascertained liability and therefore the same cannot be disallowed under the provisions of MAT u/s 115JB of the Act. However from the order of AO we find that necessary details were not furnished at the time of assessment therefore the same was added back. We also find that the remand report was not called by the learned CIT(A) during the hearing of appellate stage. In view of above we're inclined to restore the issue to the file of AO for fresh adjudication as per ....