TaxTMI 
TaxTMI 
2011 (2) TMI 1514
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....ing and/or producing articles not specified in ninth schedule. Your appellant submits that as it fulfills all the conditions laid clown for claim of relief u/s.80-I & 80-IA of the Act, the learned CIT (Appeals) ought to have granted deduction u/s.8O-I & 80-IA of the I.T. Act. Your appellant submits that deduction as claimed u/s.80-I/80-IA be allowed now. 2. The learned Commissioner of Income-tax (Appeals) has erred in confirming the disallowance of ₹ 11,07,179/- being reimbursement of 50% of interest on housing loan taken by the employees on wrong premises. Your appellant submits that it has never mentioned that in assessment year 1996-97 such disallowance has been confirmed as alleged by the learned CIT(A). On the contrary in the written submission filed before the CIT(A), your appellant has stated that disallowance has been deleted by the CIT(A) in assessment year 1996-97. Your appellant further submits that it has not given any loan to the employees, but the employees of the assessee company have taken loan from the parties other than the assessee company and the company has actually reimbursed 50 per cent of the interest paid on the loan taken by the employees. The reim....
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....ed - have actually reimbursed a part of the Gas connection charges of the employees. Your appellant submits that such reimbursement of Gas connection charges is actual payment and not the book adjustment as observed by the learned Commissioner (Appeals). Your further appellant submits that the expenditure has been incurred to keep healthy relations with the employees of the Company and in the nature of Staff Welfare expenses. It is submitted that the expenditure has been incurred for the purpose of business and incidental to the business and therefore, the learned Commissioner of Income-tax (Appeals) is not at all justified in confirming the disallowance. It is submitted that it be so held now and disallowance made be deleted now. 5. The learned Commissioner of Income-tax (Appeals) has erred in confirming the disallowance of ₹ 1,98,01,130/- being interest on borrowings made for Hazira - Ankleshwar Pipeline Project (HAPi). The main business of your appellant is Natural Gas distribution through pipelines started since 1989. The assessee company has already got a 930 km long pipeline network in place starting from Ankleshwar and Bharuch and the HAPi project was merely an incre....
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....ircumstances of its case and in view of the decision of the jurisdictional High Court and the Income Tax Appellate Tribunal, Ahmedabad, the learned Commissioner of Income-tax (Appeals) ought to have allowed the claim. Your appellant submits that it be so allowed now. 7. The learned Commissioner of Income-tax (Appeals) has erred in confirming the disallowance of ₹ 2,30,218/- out of Miscellaneous expenses of ₹ 6,79,214/- on the ground that expenses towards Family meet, LPG Day expenses, emergency work expenses for Diwali etc. are not in the nature of business expenditure. Your appellant submits that the expenses incurred by it towards Family meet, LPG Day, Emergency work expenses during Diwali period etc. are in the interest of the business and therefore, allowable u/s.37(1) of the Act. It is further submitted that when the entire expenditure of ₹ 6,79,214/- is incurred for business purposes, there is no justification in categorising an amount of ₹ 2,30,218/- as not expended for business purposes and disallowing it. Your appellant submits that in the facts and circumstances, the Commissioner of Income-tax (Appeals) is not justified in confirming the disallow....
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....TA No.36/Ahd/2005-AY:- 2001-02[Assessee] 1. The order passed by the Commissioner of Income-tax (Appeals) is erroneous on law and facts and therefore requires to be modified. It is submitted that it be so done now. 2. The learned Commissioner of Income-tax (Appeals) has erred in confirming the disallowance of claim made u/s.80-I/80-IA, on the ground that activity of your appellant cannot be held as manufacture or production of article or tiling. Your appellant submits that it is engaged in manufacturing and/or producing articles not specified in Eleventh schedule. Your appellant submits that as it fulfils all the conditions laid down for claim of relief u/s.80-I/80-IA of the Act, the learned CIT (Appeals) ought to have granted deduction u/s.80-I/80-IA of the I.T. Act. Your appellant submits that deduction as claimed u/s.80-I/80-IA be allowed now. 3. The learned Commissioner of Income-tax (Appeals) erred in confirming the order of the Assessing Officer as regards non-grant of depreciation on the assets leased to Rajasthan State Electricity Board (RSEB)- (a State Government Undertaking, formed under the State Electricity Supply Act) on the ground that the agreements made with RS....
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....llowability of interest payable on unpaid purchase price of Plant & Machinery. Your appellant submits that interest payable on unpaid purchase price of Plant & Machinery after the date of commencement of business is allowable as business revenue expenditure. Your appellant submits that in the facts and circumstances of the case, the learned Commissioner of Income-tax (Appeals) is not at all justified in confirming the disallowance. Your appellant submits that it be so held now and deduction as claimed be granted now. 5. The learned Commissioner of Income-tax (Appeals) has erred in confirming the part of disallowance made by the Assessing Officer by invoking provisions of section 14A of the I.T. Act. Your appellant submits that the learned Commissioner of Income-tax (Appeals) is not justified in holding that proportionate of the following expenses should be considered for the purpose of earning the exempted dividend income u/s. 10(33) of the Act: (a) Interest on Deferred Payment Credit ₹ 1,65,352/- (b) Interest on Working Capital ₹ 19,130/- (c) Interest on delayed payment of sales-tax ₹ 84,011/- (d) Administrative expenses ₹ 26,30,14,000/- Your a....
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....77; 4,73,171/- being expenditure on account of Diwali and Festival expenses disregarding the fact that such expenditure has not been wholly and exclusively incurred for the purpose of the business. 3. The Ld. CIT(A) erred in law and on facts of the case in deleting disallowance of ₹ 64,077/- being the amount of subsidized gas connection to the employees dis regarding the fact that such expenditure has not been incurred wholly and exclusively for the purpose of the business but was paid ex-gratis. 4. The Ld. CIT(A) erred in law and on facts of the case in deleting the disallowance of claim of bad debts of ₹ 3,04,40,547/-, disregarding the fact that the assessee has not established before the AO as to the fulfillment of the conditions laid down u/s 36(2) of the IT Act, 1961 and that the amount in question is not a trade debt, but investment made for new business. 5. The Ld. CIT(A) erred in law and on facts of the case in deleting the addition of ₹ 4,84,823/- being expenditure on spares written off disregarding the fact that spares written off will have scrap value. 6. The Ld. CIT(A) erred in law and on facts of the case in deleting the addition of ₹ 3,....
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....led discussion made in their own case in the appellate order for A.Y. 93-94. To claim deduction u/s.80I/80IA, there are conditions to be fulfilled. As per section 801(2) like the assessee should be an industrial undertaking, not formed by splitting or reconstruction of existing business, not formed by transfer of new business of plant and machinery or previously used for the purpose, the industrial undertaking manufacture or produce any article or thing not being an article or thing specified in 11th Schedule and an industrial undertaking who manufacture or produce a thing or an article having 10 or more workers where the manufacturing process is carried on with the help of power or with 20 or more workers in case of a manufacturing unit carried on without the aid of power. There is detailed discussion in their own case in the order passed by the CIT(A) for A.Y. 93-94, 94-95 & 95-96. Relying on the same the claim u/s.801 & 801A is hereby rejected." 3.1 Likewise, in the AY 2001-02, the ld. CIT(A) upheld the action of the AO. 4. The assessee is now in appeal before us against the aforesaid findings of the learned CIT(A) in these two assessment years. The learned AR on behalf of the....
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.... to confirm the quality standards. At every stage of the process, there have to be rigid quality standards and even a very minute variations or defect could render the gas totally worthless. It, therefore, follows that the assessee company is an industrial undertaking engaged in producing the decontaminated, odorized and optimally pressurized gas satisfied the condition of producing article or thing for being entitled to deduction u/s 80I/80IA." 5.1 Following the aforesaid decision, the ITAT allowed the claim in the AYs. 1994-95 to 1996-97 and in the Ay 2000-01 also. 5.2 Indisputably, since the facts obtaining in the years under consideration are similar to the facts in the aforesaid years, following the view taken by the ITAT in their aforesaid decisions in the assessee's own case for the earlier years, we have no hesitation in allowing the claim for deduction u/s 80I/80IA in the years under consideration. Therefore, ground no.1 in the appeal of the assessee for the AY 1998-99 & ground no.2 in their appeal for the AY 2001-02 are allowed. 6. Ground no.2 in the appeal of the assessee for the AY 1998-99 relates to disallowance of ₹ 11,07,179/- while ground no.1 in the appeal....
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....e case and in view of the above discussion, the same is not allowed." 7.1 However, in the AY 2001-02, the ld. CIT(A) allowed the claim while referring to decision of his predecessor in the AY 1996-97. 8. The assessee is now in appeal before us against the aforesaid findings of the learned CIT(A) in the AY 1998-99 while the Revenue is in appeal in the AY 2001-02. The learned AR on behalf of the assessee submitted that the issue is squarely covered in favour of the assessee by the decision dated 30-12-2008 in the assessee's own case for the AY 2002-03 in ITA no.1501/Ahd/2006 and the decision 30-01-2009 of the Tribunal for the AY 2000-01 in ITA no.3446/Ahd/2004. The learned DR, on the other hand, did not dispute these submissions of the ld. AR 9. We have heard both the parties and gone through the facts of the case as also the aforesaid decisions of the ITAT. We find that the issue is squarely covered in favour of the assessee by the decision dated 2.1.2007 of the ITAT in the assessee's own case for the AY 1995-96 & 1996-97 in ITA nos. 2548 & 2549/Ahd./2002, wherein it was held 17. We have heard rival submissions and perused material on record. It has not been disputed that reimb....
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.... ,following his decision for the AY 1992-93. 12. The assessee is now in appeal before us against the aforesaid findings of the learned CIT(A) in the AY 1998-99 while the Revenue is in appeal in the AY 2001-02. The learned AR on behalf of the assessee submitted that the issue is squarely covered in favour of the assessee by the decision dated 30-01-2009 in ITA no.3446/Ahd/2004 for the AY 2000-01 in the assessee's own case. The learned DR, on the other hand, did not dispute these submissions of the ld. AR. 13. We have heard both the parties and gone through the facts of the case as also the aforesaid decision of the ITAT. We find that the ITAT vide their order dated 30-01-2009 in the assessee's own case for AY 2000-01 in ITA no.3446/Ahd/2004 held as under:- "9. Ground no. ii) relates to deletion of disallowance of an amount of ₹ 1,69,628 (not ₹ 1,63,691) on account of diwali/family meeting and gas day celebrations. The AO disallowed the claim since these expenses were not related to the business of the assessee, following his own orders for the preceding years. On appeal, the Id. CIT(A), following his own decision dated 21-5-2002 for the AY 96-97, allowed the claim. ....
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....that to maintain healthy relation with the employees, the company has spent on the subsidy towards the supply of gas connection to the employees. It is argued that the expenditure is for the purpose of business and incidental to the business activity, hence requested to delete the same. In this respect the appellant has relied on one factor that it is incidental to business and expenses are in the nature of staff welfare. It is seen by me that the A.R. is relying an the CIT(A)'e order in the same case for A.Y. 1996-97 where such amount is allowed. But, in the appellate order except treating the same as incidental to business, the facts of the case are not mentioned. The fact remains that as stated by the A.O. holding that the expenses are not meant for the business activity because the appellant company is already providing housing loan to their employees and reimbursed to some an extent in case of interest payment. But, providing the subsidy towards the gas connection charges is not directly related to the business expenses. The said charges are not actually made available to the employees, but adjusted in the company's accounts. Thus, eventually it is a paper entry and not ....
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....availing of housing loan and providing gas connection subsidy was per the general HRD policies of the Gas company. As far as assessee is concerned, this expenditure represents character of business expenditure as that was incurred on employees as per agreed HRD policies indirectly, assessee could have been given higher salaries. These reimbursements are to be taken akin to allowance/perquisites of the salaries which arc to be allowed as business expenditure in the hands of the assessee. In view thereof, we find no infirmity in' the order of CIT(A) allowing these expenses. These are grounds of Revenue's appeals are dismissed.'' Similar view has also been taken by the Tribunal in assessee's own case in ITA No.95 and 96/Ahd/2008, consolidated order dt.20-2-2008 pertaining to the AYs 2003-04 and 2004-05. 5. Respectfully following the decision of the ITAT as discussed in the foregoing paragraph, we dismiss the ground No. 1 and 3 raised by the Revenue and upheld the impugned order of the learned CIT(A) in this regard. Ground No. 1 and 3 are, therefore, dismissed." 18.1 Similarly claim was allowed by the ITAT in their order dated 30-01-2009 for the AY 2000-01 19.....
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....377; 1,98,01,130 :- It is submitted by the A.R. that since the appellant is engaged in the business of supply of gas through pipe line at Bharuch, Ankleshwar and Surat and for the purpose of expansion the appellant has borrowed loan for laying down the pipe line between Hazira & Ankleshwar. Therefore, the interest on borrowed capital is for the purpose of expansion of the existing business. Therefore, allowable u/s. 36(1)(iii) of the Income-tax Act. The appellant has relied on the following decisions. - Calico Dyeing & Printing Works v/s. CIT, 34 ITR 265 (Bom.) - CIT v/s. Alembic Glass Inds. Ltd., 103 ITR 716 (Guj.) - ITO v/s. Jyoti Switch Gears Ltd., 42 TTJ 579 (ITAT, A'bad) - CIT v/s. National paroxide Ltd., 182 ITR 411 (ST)(SC) - In this case the Supreme Court has rejected the special leave petition filed by the department against the judgement dated 21/10/82 of Gujarat High Court and Gujarat High Court has also dismissed the reference application on this question. - Tata Chemicals Ltd. V/s. DCIT, 72 ITD 1 (ITAT, Mumbai) - The order of the ICT(A) in case of Gujarat State Fertilizers & Chemicals Ltd. for A.Y. 90-91& 91-92. (ii) It is stated by the A.O. 'that t....
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....y confirmed and also considering the total interest income so earned from the borrowed fond before the commencement of the business of ₹ 1,59,20,852/- is rightly added back to the total income under the head income from other sources. Thus, both the actions of the A.O. are hereby confirmed in view of detailed discussion held for A.Y. 9798 in the order dated 25/3/2004." 22. The assessee is now in appeal before us against the aforesaid findings of the learned CIT(A). The learned AR on behalf of the assessee while reiterating their submissions before the learned CIT(A) contended that the HAPi project was not a new line of business of the assessee company, but simply an extension of the same business undertaken with a view to increase the Gas distribution network. As the interest has been paid in connection with borrowings for laying the new pipe lines of HAPi Project - expansion of its existing business, the same is admissible as deduction u/s.36(l)(iii) of the I.T. Act. Alternatively, the assessee claimed depreciation on the capitalized amount. The ld. AR added that the issue is squarely covered in favour of the assessee by the decision dated 30.1.2009 of the ITAT in the asses....
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....al asset, seems to proceed on the basis that a mere transaction of borrowing does not, by itself bring any new asset of enduring nature into existence, and that it is the transaction of investment of the borrowed capital in the purchase of a new asset which brings that asset into existence. The transaction of borrowing is not the same as the transaction of investment. If this dichotomy is kept in mind it becomes clear that the transaction of borrowing attracts the provisions of section 36(1)(iii). Thus, the decision of the Bombay High Court in Calico Dyeing and Printing Works [1958] 34 ITR 265 and the judgment of the Supreme Court in India Cements Ltd. [1966] 60 ITR 52 have been given with reference to the borrowings made for the purposes of a running business, while the decision of the Supreme Court in Challapalli Sugars Ltd. [1975] 98 ITR 167 was given with reference to the borrowings which could not be treated as made for the purposes of business as no business had commenced in that case. Therefore, there is no inconsistency between the above decisions. Conclusions For the above reasons, we hold that the Assessing Officer was not justified in making disallowance of Rs. 1,56,....
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....li", the AO disallowed a lumpsum amount of ₹ 4,00,000/- out of total amount of ₹ 6,70,944/-. 27. On appeal, the learned CIT(A) restricted the disallowance to ₹ 2,30,218/- in the following terms:- "[X] Disallowance of ₹ 4,00,000/- out of Misc. expenses:- It is claimed by the ARs. that out of the total misc. expenses of ₹ 6,79,214/-, a lumpsum addition of ₹ 4,00,000/- has been made by the A.O. The entire misc. expenses includes expenses for family meet and LPG day expenses of ₹ 3,45,942/--, Gas day expenses of ₹ 1,42,212/- and distribution of sweets during Diwali and shut down expenses wrongly stated as emergency expenses of ₹ 1,82,800/-. It is stated by the A.Rs. that CIT(A) for A.Y. 96-97 has allowed the LPG day expenses and Gas day expenses and it was pointed out that the A.O. has disallowed Gas day expenses twice, once in para 4 of the assessment and secondly vide para-11 of the assessment order which will amount to double addition. Further, it is argued that the distribution of sweets is nothing, but a staff welfare expenses, it also includes Boni and Presents to outsiders and expenses incurred on account of closure of mac....
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....n view of the same the A.O. has allowed ₹ 2,70,944/- for this purpose and other purpose of staff welfare, if any. Therefore, the addition of ₹ 4,00,000/- is hereby confirmed. But, the addition of ₹ 1,69,782/-[1,42,212/- Gas day expenses + 27,570/- Diwali expenses] are already confirmed in para 4(iv) above, so no further addition is confirmed. Thus, the net addition confirmed is ₹ 2,30,218/-(4,00,000 - 1,69,782)." 28. The assessee is now in appeal before us against the aforesaid findings of the learned CIT(A). The learned AR on behalf of the assessee submitted that the issue is squarely covered in favour of the assessee by the decision dated 6-1-2006 in the assessee's own case for the AY 1993-94 in ITA no.1895/Ahd/2002 and the decision dated 30-01-2009 for the AY 2000-01 in ITA no.3464/Ahd/2004. On the other hand, the ld. DR did not oppose these submissions on behalf of the assessee 29. We have heard both the parties and gone through the facts of the case as also the aforecited decisions of the ITAT. We find that while adjudicating a similar issue in the assessee's own case, the ITAT vide their dated 30-01-2009 for the AY 2000-01 in ITA no.3464/Ahd/2004, co....
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....e may be allowed as revenue expenditure. However, the AO rejected the submissions of the assessee on the ground that the assessee did not furnish the details of consumption of meters, its closing stock and any correspondence or receipt of replacement of meters from the users. Since meters were part and parcel of gas line while the assessee claimed depreciation on gas line, the AO concluded that the cost of meter will be capital expenditure and not revenue expenditure, resulting in. disallowance of ₹ 23,46,862/-. The AO simultaneously allowed depreciation @ 25% on ₹ 23,46,862/- i.e. ₹ 5,86,716/-. Moreover, since the assessee did not account for stock of old meters, the AO also added an amount of Rs. 2 lacs on account of sale of scrapped meters. 32. On appeal, the learned CIT(A) adjudicated the issue in the following terms:- "[XI](i) Disallowance of ₹ 23,46,862/- - replacement of defective meters:- The ARs have relied on the following cases to consider the replacement of old meter with current meters. - Addl.CIT v/s. Desai brothers, 108 ITR 14 z(Guj.) - Nathumal bankatlal parikh v/s.CTI, 122 ITR 168 (A.P.) - K.C.P. Ltd. v/s. ITO,38ITR15(Hyd.) - I.A.....
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.... Whereas, it is stated by the AO in the order that the assessee has not accounted for any scrap/replaced meters and he has estimated such scrap value at ₹ 2,00,000/- and added back to the income. (ii) I have gone through the arguments made by the AR and seen that out of the replacement of the old meters, the assessee has spent ₹ 23,46,862/- as claimed by him. However, if it is considered that old meters were purchased at half of the value which comes to ₹ 11,73,431/- and the AO has considered the scrap value at ₹ 2,00,000/- which appears to be on the higher side. Therefore, the same is considered at ₹ 1,00,000/- on estimation basis since no details are available. Thus, the assessee gets the relief of ₹ 1,00,000/- on account of this addition." 33. The assessee is now in appeal before us against the aforesaid findings of the learned CIT(A). The learned AR on behalf of the assessee while referring to their letter dated 23.2.2001 addressed to JCIT, Spl Range [page 131 to 138 of the PB] contended that 6000 second hand meters were imported vide bill dated 10.1.1996 @ Rs. 400 per meter and old defective meters were replaced. Therefore, the expenditur....
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....sallowed an amount of ₹ 9,05,000/- and allowed deduction u/s 35D at 1/10th of ₹ 9,05,000/- i.e. ₹ 90,500/-. 36. On appeal, the learned CIT(A) upheld the findings of the AO in the following terms:- "[XII] Disallowance of ₹ 9,05,000/- market survey expenses:- It is argued by the AR that the company is engaged in bottling and marketing of LPG which has started business during the FY 95-96 with its own outlets. During the year, 5 kgs. Cylinder is launched in the market to assess the viability of new cylinder, expenses are incurred to see the effectiveness of the market. A periodic research was conducted and work was assigned to Gallup MBA India & Co. and Span Associates Pvt. Ltd. Further, it is claimed that the expenses are for the sales promotion which are to be allowed u/s 37(1) of the Act relying on the case laws like CIT vs. Aluminium Inds. Ltd., 80 Taxman 243 (Ker), Associated Marketing Agency vs. ITO 43 ITD 543 (Mad) and CIT vs. Kirloskar Engineering Ltd. 157 ITR 762 (Bom). It is held by the AO in the order in para-13 that such expenses are in the nature of capital expenses coming u/s 35D of the IT Act. It is also stated that the details of such expen....
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....eal, the learned CIT(A) while referring to his findings in the AY 2000-01 directed in the following terms:- "7.1 Before me, the appellant's representative Shri D J Shah and Shri Anuj Mehta have submitted that in case the transaction is not held as genuine lease transaction then only the interest element in the lease rentals should be added to the income and the principal amount recovered should be excluded from the total income, 7.2 During the course of hearing, the appellant's representative has also taken up additional ground of appeal in this respect stating that deemed recovery of principal amount of ₹ 2,46,90,915/- should be ignored from the total income and only the interest portion should be brought to tax and not the entire lease rental received ₹ 2,75,37,050/-. The additional ground raised was forwarded to the A.O. i.e. DCIT Circle-4, Ahmedabad for his comments which have been received as per teller dated 7.10.2004. The same were also forwarded to the appellant for counter comments which have been given on 2.11.2004. It has been submitted by the appellant's representative that the said ground is linked with the original ground of claim of deprec....
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....n tax appeal no. 444 of 2008, wherein Hon'ble jurisdictional High court held as under; "5. In relation to the transaction, after referring to an earlier order of the Tribunal, the Tribunal in the present case recorded the following findings: "10.9 respectfully following the aforesaid case, we find that in the case before us the invoices are in the name of the assessee as is clear(copy of these invoices appearing at page 59 to 63 of the paper book).Similar transaction was held to be genuine transaction by Hon'ble Rajasthan High Court in the case of RSEB(supra),therefore, transaction in question is held to be genuine one and ,therefore, we set aside the order of the CIT(A) and direct the assessing officer to allow depreciation to the assessee." 6. With reference to decision of Rajasthan High Court as appearing in the order of Tribunal, the same relates to the decision reported in (2006) 204 CTR(Raj) 415 in the case of CIT Vs. Rajasthan State Electricity Board. The question before the Rajasthan High Court was in relation to disallowance of payment of lease rentals on the transaction of sale-cum-lease back agreement and Rajasthan High Court has found that the Tribunal has rightly....
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....0-01,2003-04 & 2004-05, following the view taken by the Hon'ble jurisdictional High Court in the assessee's own case in the AY 1995-96 and by the Hon'ble Rajasthan High Court in the case of CIT vs. Rajasthan State Electricity Board(supra) as also by the ITAT in their aforesaid decisions in the assessee's own case, we have no hesitation in allowing the claim of the assessee in the year under consideration. Therefore, ground no.3 in the appeal of the assessee for the AY 2001-02 is allowed. 44. Ground no.4 in the appeal of the assessee for the AY 2001-02 relates to disallowance of ₹ 1,65,352/- on account of interest payable on unpaid purchase price of plant and machinery acquired on credit. Relying upon the decision of the Hon'ble Supreme Court in the case of Bombay Steam Navigation Co. (1953) (P) Ltd. vs. CIT (1965) 56 ITR 52, the AO observed that an agreement to pay the balance of consideration due by the purchaser does not in truth give rise to loan. Since the assessee Company is in the business of the distribution of the Natural Gas and there was no connection between the leasing resorted to by the assessee and its principal business, the AO concluded that the leasing w....
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....00 B Total funds available 2804719000 C. Cost of fund (taking both borrowed fund and own fund together) A/B 0.0385789 D Investment in Shares 802876000 E Cost of fund invested in shares (A/B)*D Sales and other receipts 3205354000 F Total Receipts 3205354000 G Dividend being exempt 43166098 H Administrative and other expenses 263014000 I Amount of Disallowance (H*G)/F 3,541,976.4 Total disallowance u/s 14A E + I 3,45,16,057 49. On appeal, the learned CIT(A) decided the issue in the following terms:- "9.1 Before me, the appellant's representative has submitted that the AO is not justified in the computation adopted since the expenditure which has been apportioned is not co-related with the earning of the exempted income. The details of interest expenditure of ₹ 10,82,02,833/- have been given before me at page 25 of the paper book in which the following interest expenditure has been deducted. . (i) Interest on Debenture Rs.10,68,99,986/- (ii) Interest on Deferred Payment Credit ₹ 1,65,352/- (iii) Interest on Working Capital ₹ 19,130/- (iv) Interest on Delayed payment of Sales Tax ₹ 84,011/- (v) Interest provision on G....
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....es since the assessee earned exempt income. The ld. CIT(A) following his decision for the AY 2000-01 reduced the disallowance. In that year, a similar issue was restored to the file of the AO by the ITAT for recomputing the disallowance in the light of provisions of sub-section (2) and (3) of section 14A of the Act read with Rule 8D of the IT Rules, 1962 in ITA nos. 3446& 3464/Ahd/2004 following the decision dated 22.10.2008 of the Special Bench of the ITAT in the case of Daga Capital Management (P) Ltd. in ITA no.8057/Mum./2003. 51.1 We further find that recently, Hon'ble Bombay High Court in their decision dated 12.8.2010 in case of Godrej & Boyce Mfg. Co. Ltd. Mumbai. in the ITA no. 626/2010 while adjudicating a similar issue in the context of provisions of sec. 14A of the Act and Rule 8D of the IT Rules,1962 concluded that Rule 8D, inserted w.e.f 24.3.2008 cannot be regarded as retrospective because it enacts an artificial method of estimating expenditure relatable to tax-free income. It applies only w.e.f AY 2008-09. For the assessment years where Rule 8D does not apply, the AO will have to determine the quantum of disallowable expenditure by a reasonable method having regard....
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....come under this Chapter" which makes it clear that various heads of income as prescribed under Chapter IV would fall within section 14A. The next phrase is, "in relation to income which does not form part of total income under the Act". It means that if an income does not form part of total income, then the related expenditure is outside the ambit of the applicability of section 14A. Further, section 14 specifies five heads of income which are chargeable to tax. In order to be chargeable, an income has to be brought under one of the five heads. Sections 15 to 59 lay down the rules for computing income for the purpose of chargeability to tax under those heads. Sections 15 to 59 quantify the total income chargeable to tax. The permissible deductions enumerated in sections 15 to 59 are now to be allowed only with, reference to income which is brought under one of the above heads and is chargeable to tax. If an income like dividend income is not a part of the total income, the expenditure/deduction though of thenature specified in sections 15 to 59 but related to the income not forming part of total income could not be allowed against other income includible in the total....
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....see would be entitled to deduction of interest under Section 36(1)(iii) of the Act on borrowed funds utilised for the acquisition of shares only if shares are held as stock in trade which arises only if the assessee is engaged in trading in shares. So far as acquisition of shares is in the form of investment and the only benefit assessee derived is dividend income which is not assessable under the Act, the disallowance under Section 14A is squarely attracted and the Assessing Officer, in our view, rightly disallowed the claim. As already pointed out, the Calcutta High Court decision which pertains to the period prior to introduction of Section 14A, has no application. The decision of the Supreme Court also does not apply because in this case apart from investment in shares of the company, there is nothing to indicate that the assessee's business was fully linked with the business of the leasing company or that assessee's business is solely dependent on the business of the leasing company. In fact, the whole transaction was a total fiasco in as much as, as against ₹ 17,44,310/- paid towards interest on borrowed funds serviced at the rate of interest of 24% p.a., the di....
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....off. The AO noticed that the assessee had written off debit balances amounting to ₹ 32,618/-, comprising small amounts outstanding since long from various persons. There being no other justification, the AO disallowed the said amount of ₹ 32,618/-. 53. On appeal, the learned CIT(A) upheld the disallowance in the following terms:- "Ground No.15: This relates to disallowance of ₹ 32,618/- being misc. expenditure written off. No details have been given before the AO and the arguments before the AO have been reiterated before me. It is stated that these are small amounts of various defective goods, advances given, etc. In the absence of any specific details, the same cannot be allowed as business expenditure and the addition on this count is confirmed." 54. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A). The learned AR on behalf of the assessee submitted that the issue is covered in favour of the assessee by the decision dated 30-01-2009 of the ITAT in the assessee's own case for AY 2000-01 in ITA no.3446/Ahd/2004.The learned DR did not oppose these submissions on behalf of the assessee. 55. We have heard both the parties....
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....no hesitation in restoring the matter to the file of the AO for readjudication in the light of aforesaid directions of the ITAT in the AY 2000-01. Therefore, ground no.6 in the appeal of the assessee for the AY 2001-02 is disposed of. 56. Next ground no.4 in the appeal of the Revenue relates to disallowance of ₹ 3,04,40,547/- on account of bad debts. The AO noticed that the assessee had written off a sum of ₹ 3,04,40,547/- in the name of Petroleum Infrastructure Ltd. To a query by the AO, the assessee explained vide letter dated 20.02.2004 as under: "In earlier assessment years to meet the growing demand for LPG and other petroleum products, the Government of India has accorded very high priority for the development of Port infrastructure facility. We have identified this as one of the growth areas for expansion of business, which is supporting to its LPG parallel marketing business. Accordingly, we set up a joint venture company with Bharat Petroleum Corporation Ltd. for development of import terminals of some existing/new ports along with suitable infrastructure. We signed a joint venture agreement with BPCL and done the necessary formalities and established a....
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.... have been written off as under: Date Amount written off 22-12-2000 ₹ 14,36,397 22-12-2000 Rs.2,90,00,000 10.2 This has been done by way of two separate entries, copies of accounts of PIL for the relevant period have been furnished at page 6 to 17 of the paper book. In view of the above factual position it is pleaded that all the necessary conditions for claim of bad debt have been satisfied. 10.3 I have carefully considered the submissions and the facts referred above which have been stated during the course of hearing, it is noted that financial condition of the said company, namely, PIL, is not good and there is little chances for recovery of the advances made to the said company and the appellant has written off the said amounts in the books of account The claim of bad debt is therefore valid as per section 36(2) of the Income Tax Act, having regard to the decision of Gujarat High Court in the case of Girish Bhagwat Prasad Vs. CIT 256 ITR 772. However, the said amounts recovered, if any in subsequent years are required to be assessed as and when if any amount is recovered from the said party. The appellant's representative Shri D J Shah has submitted that....
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.... the AO relied upon a number of decisions namely A.V. Thomas & Co. V. CIT 48 ITR 67(SC),K. J. Somaiya & Sons Pvt. Ltd. 156 ITR 605( Bombay)& Indiquip Ltd. vs. CIT,202 ITR 417(Bombay). The ld. CIT(A) without going in to these aspects pointed out by the AO or decisions relied upon by him, simply allowed the claim on the ground that the claim of bad debt is valid as per section 36(2) of the Act, having regard to the decision of Gujarat High Court in the case of Girish Bhagwat Prasad Vs. CIT 256 ITR 772. Apparently, the ld. CIT(A) did not analyse nor controverted the facts pointed out by the AO nor even brought out as to how the conditions stipulated in sec.36(1)(vii) read with sec. 36(2) of the Act were fulfilled in the instant case. Even the alternative plea on behalf of the assessee that the amount is trading loss has not been examined by him. A mere glance at the impugned order reveals that the order passed by the ld. CIT(A) is cryptic and grossly violative of one of the facets of the rules of natural justice, namely, that every judicial/quasi-judicial body/authority must pass a reasoned order, which should reflect application of mind by the concerned authority to the issues/points....
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....im, the assessee having not established that the capital stores written off had become obsolete and non-usable. 61. On appeal, the learned CIT(A) allowed the claim of the assessee in the following terms:- "Ground No.13: This relates to addition of ₹ 4,84,823/- being amount on spares written off. This has been discussed by the AO at page 10 of the order. It was the case of the AO that the expenditure is not admissible. On the other hand, the appellant's representative has submitted before me that spares stores and spares being very old became unusable having zero value and accordingly the same had been written off treating the value as zero and also debited the respective accounts. It is further clarified that the amount was not earlier debited in the profit and loss account. In view of the above factual position, the expenditure being incurred in the course of business is therefore admissible and no addition in this respect is called for which is accordingly deleted." 62. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A). The ld. DR supported the order of the AO while the ld. AR relied upon the findings of the ld. CIT(A).Inter alia th....
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.... appellant company has also brought to my notice the audited balance sheets of several companies both in public as well as private sectors to show that the same method as in the case of the appellant is being followed universally by all the companies for the purpose of charging obsolescence to the account in respect of non-moving spare parts. The names of these companies are (1) National Fertilizers Ltd., (2) Rashtriya Chemicals & Fertilizers Limited and (3) Fertilizers and Chemicals Travancore Ltd. The disallowance is, therefore, deleted." 63.1 In the instant case, the AO disallowed the claim since the assessee did not establish that the capital stores written off had become obsolete and non-usable. The ld. CIT(A) allowed the claim without recording any findings as to whether or not the assessee followed a scientific method on the basis of technical advice while writing off the obsolete stores or that the method adopted by the assessee was in consonance with the approved accounting principles. Even before us no such material has been placed in order to ascertain as to whether or not any scientific method on the basis of technical advice was followed in writing off the aforesaid a....
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....ble jurisdictional High Court in Karjan Co-operative Cotton Sales Ginning and Pressing Society v. CIT [1993] 199 ITR 17 held that the true test of an expenditure laid out wholly and exclusively for the purpose of trade or business is that it is incurred by the assessee as incidental to his trade for the purpose of keeping the trade going and of making it pay and not in any other capacity than that of a trader. In the instant case, the ld. CIT(A) allowed the claim following the decision of his predecessor in the AY 1992-93. There is nothing to suggest as to whether the decision of the ld. CIT(A) in the AY 1992-93 was disputed in further appeal. There is no material on record to show that any part of the said expenditure was incurred for non-business purposes. In these circumstances, especially when there is no material before us to take a different view in the matter, we are not inclined to interfere with the findings of the ld. CIT(A). Therefore, ground no.6 in the appeal of the Revenue for the AY 2001-02 is dismissed. 68. Ground no.7 in the appeal of the Revenue for the AY 2001-02 relates to disallowance of foreign travel expenses of ₹ 7,47,507/-. The AO noticed that the ex....