TaxTMI 
TaxTMI 
2011 (2) TMI 1514
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....llant submits that it is engaged in manufacturing 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 Rs. 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 ....
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....ny and the assessee company - Gujarat Gas Company Limited - 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 Rs. 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 Ankle....
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....has been written off. Your appellant submits that in the facts and circumstances 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 Rs. 2,30,218/- out of Miscellaneous expenses of Rs. 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 Rs. 6,79,214/- is incurred for business purposes, there is no justification in categorising an amount of Rs. 2,30,218/- as not expended for business purposes and disallowing it. Your appellant submits that in the facts and circumstances, the Commissioner of Incom....
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.... all or any of the grounds before the final hearing of appeal. " ITA 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, for....
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....rcular letter bearing F.No.10/76/82-IT(A-l) dated 13-09-1965 clarifying the position of allowability 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 Rs. 1,65,352/- (b) Interest on Working Capital Rs. 19,130/- (c) Interest on....
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.... was paid to the employees ex gratis. 2. The Ld. CIT(A) erred in Saw and on the facts of the case in deleting the disallowance of Rs. 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 Rs. 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 Rs. 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 Rs. 4,84,823/- being expenditure on spares written off disregarding the ....
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.... was disallowed by the A.O. and the CIT(A) has also confirmed for all the three years. Therefore, the appellant has not offered any further explanation in view of the detailed 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 act....
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....rized gas with the help of high precision instruments, in rigid atmospheric and pressure conditions which are of great importance in ensuring the final quality of the gas which has 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 thei....
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....ected with the business activity' of the company and not falling under staff welfare expenses. Thus, in the reasons mentioned by the learned CIT(A) for A.Y. 96-97 in the same 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 th....
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....2 also. 11. On appeal, the learned CIT(A) following his decision for the AY 1997-98 upheld the disallowance in the AY 1998-99 while in the AY 2001-02, claim was allowed ,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 Rs. 1,69,628 (not Rs. 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 o....
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....ppeal, the learned CIT(A) confirmed the disallowance in the AY 1998-99 in the following terms:- "[V] Subsidy for gas connection to staff- Rs. 33,303/-:- It is raised by the appellant 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 ....
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....s, the Tribunal vide paragraph 17 has held as under: "17. We have heard rival submissions and perused material available on record. It has not been disputed that reimbursement of portion of interest incurred for 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 rai....
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....as revenue expenditure was, rejected, resulting in disallowance of Rs. 38,80,278/-. 21. On appeal, the learned CIT(A) upheld the findings of the AO in the following terms:- "[VI](i.) Interest on borrowed capital of Rs. 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 ....
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....come earned out of borrowed fund is to be treated as income from other sources. Thus, the A.O. has rightly disallowed the claim of interest on borrowed capital not debited to Profit & Loss Account, but claimed in the foot notes of Rs. 38,80,278/- is hereby confirmed and also considering the total interest income so earned from the borrowed fond before the commencement of the business of Rs. 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....
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....o acquire a revenue asset or a capital asset, because all that the section requires is that the assessee must borrow the capital for the purpose of his business. This dichotomy between the borrowing of a loan and actual application thereof in the purchase of a capital 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....
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....Since the family meet expenses and gas day expenses etc. were not in the nature of business expenditure, having not been incurred for earning any business profit nor the assessee offered any explanation regarding purpose of expenses incurred under the head "Emergency Work Expenses for Diwali", the AO disallowed a lumpsum amount of Rs. 4,00,000/- out of total amount of Rs. 6,70,944/-. 27. On appeal, the learned CIT(A) restricted the disallowance to Rs. 2,30,218/- in the following terms:- "[X] Disallowance of Rs. 4,00,000/- out of Misc. expenses:- It is claimed by the ARs. that out of the total misc. expenses of Rs. 6,79,214/-, a lumpsum addition of Rs. 4,00,000/- has been made by the A.O. The entire misc. expenses includes expenses for family meet and LPG day expenses of Rs. 3,45,942/--, Gas day expenses of Rs. 1,42,212/- and distribution of sweets during Diwali and shut down expenses wrongly stated as emergency expenses of Rs. 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 p....
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....aff welfare measures have been taken-up and profit of the company has increased. Thus, there are no details available on the records. However, the expenses incurred during the shut down of the machinery can be allowed. Thus, in view of the same the A.O. has allowed Rs. 2,70,944/- for this purpose and other purpose of staff welfare, if any. Therefore, the addition of Rs. 4,00,000/- is hereby confirmed. But, the addition of Rs. 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 Rs. 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 ....
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....s. To a query by the Bench, the assessee stated that they suo motu replaced defective meters and as a result revenue of the company enhanced. Since the expenditure was in the nature of repairs, the assessee argued that the same 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 Rs. 23,46,862/-. The AO simultaneously allowed depreciation @ 25% on Rs. 23,46,862/- i.e. Rs. 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 Rs. 23,46,862/- - replacement of defective meters:- The ARs have relied on the following c....
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....made by the AO is hereby confirmed." 32.1 As regards addition on account of scrap, the ld. CIT(A) reduced the amount to Rs. 1 lac as under: "It is argued by the AR that replaced old meters have no scrap value. Therefore, requested to delete the same. 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 Rs. 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 Rs. 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 Rs. 11,73,431/- and the AO has considered the scrap value at Rs. 2,00,000/- which appears to be on the higher side. Therefore, the same is considered at Rs. 1,00,000/- on estimation basis since no details are available. Thus, the assessee gets the relief of Rs. 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 the....
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....ket survey was conducted to start a new business in new areas with the launch of new 5 kg. LPG Cylinders and therefore, it was in the nature of project expenses/capital expenses and qualified for deduction u/s 35D of the Act. The AO, accordingly, disallowed an amount of Rs. 9,05,000/- and allowed deduction u/s 35D at 1/10th of Rs. 9,05,000/- i.e. Rs. 90,500/-. 36. On appeal, the learned CIT(A) upheld the findings of the AO in the following terms:- "[XII] Disallowance of Rs. 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....
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....e case of ICICI Ltd. vs. DCIT in ITA no. 3300/Mum/1997 as also the decision of the Hon'ble Supreme Court in McDowell & Co. vs. CTO,154 ITR 148 (SC), the AO disallowed the claim of depreciation on assets of sale and lease back transactions. 40. On appeal, 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 Rs. 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 Rs. 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 te....
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.... and Hon'ble jurisdictional High Court, relied on by the learned AR on behalf of the assessee, we find that a similar issue in this case has already been decided by the Hon'ble jurisdictional High Court in the assessee's own case for the AY 1995-96 vide order dated 10.9.2008 in 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....
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....impugned order of the learned CIT(A) and direct the Assessing Officer to allow the depreciation as claimed by the assessee. Therefore, ground no. 3 in the appeal of the assessee is allowed. 43. Indisputably, since the facts obtaining in the year under consideration are similar to the facts in the assessment years 199596,2000-01,2003-04 & 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 Rs. 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 ag....
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....nce the assessee claimed exemption of income of Rs. 4,31,66,098/- u/s 10(33) of the Act, referring to decision of the Hon'ble Supreme Court in the case of Rajasthan State Warehousing Corporation Ltd. vs. CIT,245 ITR 150, the AO disallowed an amount of Rs. 3,45,16,057/- as per the following working:- A Total Interest payment 108203000 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 detail....
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....the ld. AR relied upon the decisions in the case of Godrej and Boyce Mfg. Co. Ltd. vs. DCIT (2010) 328 ITR 81 (Bom) and Hero Cycles Ltd,178 Taxman 484(P&H). The learned DR, on the other hand, supported the findings of the AO. 51. We have heard both the parties and gone through the facts of the case as also the aforesaid decisions relied upon by the learned AR. We find that the AO made an estimated proportionate disallowance of aforesaid expenses 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 c....
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....on-exempt income by debiting the expenses, incurred to earn the exempt income, against taxable income. The basic principle of taxation is to tax the net income, i.e., gross income minus the expenditure. On the same analogy the exemption is also in respect of net income. Expenses allowed can only be in respect of earning of taxable income. This is the purport of section 14A. In section 14A, the first phrase is "for the purposes of computing the total income 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 permissib....
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....utilised by the assessee for purchase of shares in the company. In our view, the reasoning given by the Tribunal for disallowance of Rs. 2 lakhs i.e. by applying Section 14A, squarely applies for the interest paid on borrowed funds because it is on record that the entire funds borrowed were utilised for acquisition of shares by the assessee in the company. In fact, in our view, assessee 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 nothi....
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....n mind, inter alia, the mandate of provisions of sec. 250(6) of the Act. With these observations, ground no.5 in the appeal of the assessee as also ground no.8 in the appeal of the Revenue for the AY 2001-02 are disposed of. 52. Ground no.6 in this appeal by the assessee for the AY 2001-02 relates to disallowance of Rs. 32,618/- being the amount of debit balance written off. The AO noticed that the assessee had written off debit balances amounting to Rs. 32,618/-, comprising small amounts outstanding since long from various persons. There being no other justification, the AO disallowed the said amount of Rs. 32,618/-. 53. On appeal, the learned CIT(A) upheld the disallowance in the following terms:- "Ground No.15: This relates to disallowance of Rs. 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....
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....h Court in the case of Dhall Enterprised and Engineers P Ltd. (supra). With these directions, ground No. v) in the appeal of the Revenue is disposed of." 55.1 Indisputably, since the facts obtaining in the year under consideration are similar to the facts & circumstances in the AY 2000-01, following the view taken by the ITAT in their aforesaid decision in the assessee's own case, we have 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 Rs. 3,04,40,547/- on account of bad debts. The AO noticed that the assessee had written off a sum of Rs. 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....
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....ri D J Shah has furnished copy of balance sheet of Petroleum Infrastructure Limited as on 31st March, 2003. It is seen that the total shareholding of the said company was Rs. 15 crore for A.Y, 2003-04. The said company has shown loss of Rs. 151,057,266/- i.e. entire capital has been wiped off. It is therefore pleaded by the assessee that the amounts advanced to the said company have been written off as under: Date Amount written off 22-12-2000 Rs. 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 ba....
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....e. We find that the AO disallowed the claim since the aforesaid amount was admittedly capital investment in the joint venture and did not fulfill conditions stipulated u/s 36(1)(vii) read with sec. 36(2) of the Act nor the assessee submitted any evidence that the aforesaid amount had been considered as revenue receipt and offered to tax in any of the earlier years. Inter alia, 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 l....
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....on account of stores written off. The AO noticed that the assessee debited a sum of Rs. 4,84,823/- being capital stores written off. To a query by the AO, the assessee replied the amount represented non-moving items of stores and spares, which were unused for a long time and had become obsolete. Thus, the amount had been written off. However, the AO did not allow the claim, 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 Rs. 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 factua....
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.... or to reduce the cost proportionate to the obsolescence suffered for nonuser, wear and tear or for other reasons. Since the company has followed a scientific method of the basis of technical advice and this method is in consonance with the approved accounting principles, the loss claimed on account of obsolescence has to be allowed as a business loss u/s 28. The 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 me....
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....fts and presentation articles was not of a personal nature nor the expenditure incurred by the assessee brought into existence any tangible assets. Even though the expenditure incurred may bring to the assessee some benefit of an enduring nature, this alone will not be sufficient to treat the expenditure as an expenditure of capital nature. A full Bench of the Hon'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 bef....