TaxTMI 
TaxTMI 
2017 (1) TMI 1287
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.... Kumar Kureel, Ld. Departmental Representatives 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....
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....appeal before Ld. CIT(A) who directed the AO to calculate the quantum of disallowance in accordance with Rule 8D of the IT Rules. 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....
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.... complying with other conditions as stipulated in Section 115JB(2) of the Act . Such book profit has to be increased by item Nos. (a) to (k) 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....
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....Rule 8D of Income Tax Act,1961 is a machinery provision to compute disallowance of expenditure u/s 14 A of the Act in relation to the income which does not form part of the total income 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....
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....ry, it is seen that major amount of Rs. 4,41,089/- was paid to Union Trading Co. in connection with "free trade zone authority". It is submitted that the assessee had negotiated to set up a joint venture 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 att....
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....evident from the MOU which is placed on pages 72-76 of the paper book which reads as under:- "WHEREAS UTC, a company incorporated in Dubai trading in industrial and water treatment chemicals fertilizers, 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 ....
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....ct any portion of an expenditure of a capital nature. If an expenditure comes within any of the enumerated classes of allowances, the case can be considered under the appropriate class; but there may be an expenditure which, though not exactly covered by any of the enumerated 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 i....
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....e project was abandoned the work-in-progress did not proceed any further. The decision to abandon the project was the cause for claiming the deduction. The decision was taken in the relevant year. It can therefore be safely concluded that the expenditure arose in the relevant year. Reference in this regard may be made 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 w....
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....e storage etc., should also be included in the valuation of closing stock. Accordingly, the AO estimated Rs. 60 lacs towards freight, insurance and storage and handling expenses which was added to the closing stock of the assessee. Accordingly the closing stock of the assessee was enhanced by a sum of Rs. 3,35,64,496/- to the total income of assessee. 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 wher....
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....plied by the Assessing Officer was the best and cannot be faulted. There should be no doubt that the expenses incurred till the stage of bringing the goods to the point of sale are part of the cost of the goods and the same have to be factored in the valuation of the stock. That obviously has not been done by the assessee. According to the details submitted by the 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 asse....
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....osing stock was available throughout India. The ld. AR drew our attention on page 27 of the paper book where actual purchase price and subsequent year actual sale price was placed. The ld. AR also submitted that the products was imported to sale the same to M/s Saraya Industries Limited but subsequently the party canceled the deal. The cancellation letter of the party is placed on 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 ....
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.... as the case may be, shall be deemed to be the income of the year in which it is received.] From the above we find that the assessee has to adopt the method for the valuation of closing stock on regular basis. The assessee cannot change the method of valuation of closing stock as per his requirement. The method of valuation once adopted then the same should be regularly employed by the assessee. 18.1 Similarly we also find 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 dea....
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.... for the subsequent financial year. This ground of appeal of the assessee is dismissed in terms of above. 19. Fourth issue raised by assessee in this appeal is that Ld. CIT(A) erred in not allowing write off of lease premium of Rs. 24,64,304/- as revenue expenditure. 20. At the time of hearing Ld. AR for the assessee has not pressed this issue. Hence, same is dismissed as not pressed. 21. Fifth issue raised in Ground No. 5(a) & 5(b) is that ld. CIT(A) erred 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 duri....
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.... ss. 207 and 208 or within the dates indicated in s. 211 which inevitably falls within the last date of financial year preceding the relevant assessment year. Consequently, the assessee cannot be branded as a defaulter in payment of advance tax. It appears that the Tribunal has not at all considered the aforesaid aspect as to the liability of the assessee to make payment of the advance tax on the last day of the financial year i.e. 31st March, 2001 when its book profit was nil 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....
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....fication to change the head of income and to assess it as profits of business. The Assessing Officer is directed to treat the amount as 'Capital Gains'." Being aggrieved by this, Revenue has come up in appeal before us. 26. Before us Ld. DR submitted that considering the volume, frequency and quantum of the sale purchase of the shares, the assessee intention is clear that it is doing business transactions. The books of the assessee are not conclusive therefore, the same should be again be looked 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 ....
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....- "In the computation of book profit u/s. 115JB of the Income-tax Act, the Assessing Officer added back the amount of Rs. 24,15,907/- debited by the assessee as 'provision for doubtful debts and advances', holding the same as contingent liability. In appeal, it was submitted that the provision was not in respect of any liability but in respect of anticipated erosion in the value of assets. Reliance was also placed on the decision of the Special Bench of Kolkata ITAT in the case of CIT vs. Usha Martin industries 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 ....
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....ank guarantee in the course of the business. III. Such income has been taxed as part of the profits and gains of the business in the past and IV. No sufficient reason has been brought on record to justify a departure from the past, It is held that the income in question is assessable under the head profits and gains of business of the assessee. The Assessing Officer is directed to re- compute the income accordingly." Being aggrieved by this, Revenue has come up in appeal before us. 36. Ld. DR for the Revenue before us submitted that it is nowhere clear from the order of Ld. CIT(A) 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. ....
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....TR 0094 has decided the identical issue in favour of assessee considering the Pandian Chemical Ltd. (supra) in favour of the assessee. The relevant extract of the order is reproduced below:- "In instant case, assessee was a 100% EOU, which had exported software and earned income. A portion of that income was included in EEFC account. Yet another portion of amount was invested within country by way of fixed deposits, another portion of amount was invested by way of loan to sister concern which was deriving interest or consideration received from sale of import entitlement, which was permissible in law. There was a direct 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, fir....
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....& Crafts Exports vs. ITO (2012) 66 DTR (Mumbai)(Trib) 69 affirmed Tribunal was justified in holding DEPB as a profit derived from export business for the purpose of computing deduction under s. 10BA; no question of law arises." 37.2 Similarly we also rely on the judgment of Hon'ble High Court of Karnataka in the case of CIT & ANR Vs. Chinna Nachimuthu Constructions reported in 297 ITR 070. The relevant extract of the order is reproduced below: "Business income-Vis-a-vis income from other sources-Interest on fixed deposits made for securing bank guarantee to obtain contract-Investment of amount in fixed deposits by the assessee being only to secure a bank guarantee 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 b....
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....Chinna Nachimuthu Construction 297 ITR 70 relied. Interest earned by the assessee on the investment of amount in fixed deposits which was only to provide a bank guarantee to the contractee in order to acquire the contract work, could not be treated as income from other sources and had to be treated as business income only." In the present case the assessee has also earned income from the interest on the margin money deposited with the bank in order to avail the bank guarantee in order to participate in tenders. There is a direct nexus between interest income and the income of the business of the undertaking. Indeed the interest income does not par take the character of a profit and gains from 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 sam....
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..... CIT(A) has not verified the documentary evidence to ensure whether the provision for leave encashment has been crystallized in the year under consideration. The learned CIT(A) has not referred to any actuarial valuation report in order to ascertain the provision for leave encashment. The learned DR requested the bench to restore the issue to the file of AO for fresh adjudication. The ld. DR vehemently supported the order of AO. On the other hand the learned A are before us submitted that all the documents along with computation of income and financial statements were made available to the assessee learned CIT a at the time of appellate stage and accordingly the lease was granted by the learned CIT the learned AR also submitted 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 t....
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....liges all authorities, civil and judicial, in the territory of India to act in aid of Supreme Court. Failure to comply with the directions of this Court by the Tribunal has to be deplored. The Tribunal is expected to be more responsive and more sensitive to the directions of this Court. Liability incurred by assessee under the leave encashment scheme applicable to its employees proportionate to the entitlement earned by the employees subject to ceiling on accumulation not being a contingent liability, provision made therefore is deductible." 45.1 Similarly we also find support and guidance from the judgment of Hon'ble Himachal Pradesh High Court in the case of CIT Vs. H.P. Tourism Corporation Limited reported in 35 taxmann.com 450 wherein it was observed 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 - Whet....