TaxTMI 
TaxTMI 
2017 (10) TMI 53
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....se, the Ld. CIT(A) has erred in deleting addition of Rs. 1,13,56,861/- on account of depreciation disallowed on catalyst; iii) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in allowing club expenses of Rs. 2,44,736/- paid by assessee for membership of its employees; iv) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in allowing rent paid for flat of Rs. 10,80,000/- to a person specified u/s 40A(2)(b); v) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance of Rs. 60,72,592/- u/s 35D out of payments of Rs. 67,47,325/- made by the assessee to Zuari Investment Ltd. without appreciating the fact that these expenses are w.r.t. shipping division whose income was offered on the basis of Tonnage Scheme, hence no expenditure of this division can be separately allowed. Otherwise also these expenses were falling under the mischief of section 35D of the I.T. Act and should have been accordingly allowed; vi) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in curtailing disallowance out of in....
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....ange-2, Kota erred in disallowing interest of Rs. 12,90,03,457/- on loan on account of investment in mutual funds and the L'd Commissioner of Income Tax (Appeals), Kota further erred in maintaining the addition of interest of Rs. 1,79,04,632/- without proving any nexus between investments and interest bearing loans. Hence the addition made on this account deserves to be deleted. 3. That the L'd Joint Commissioner erred in not allowing the deduction from income of Rs. 3,05,18,573/- and holding that education cess is a disallowable expenditure u/s 40(a)(ii) and not allowable expenditure u/s 37 and the L'd CIT(Appeals) erred in confirming the same. Hence the claim for deduction from income in respect of education cess of Rs. 3,05,18,573/- should be allowed. 4. That the L'd Joint Commissioner erred in making the disallowance of Rs. 25,00,816/- in respect of previous years expenses crystallized during A.Y. 2009-10 and the L'd CIT(Appeals) further erred in confirming the same. Since the expenditure crystallized during the year the same are allowable expenses and the disallowance made should be deleted. 5. That the L'd Assessing Officer erred is not allowing ded....
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.... In that case, the AO was of the view that the school is not owned by the company and the entry in the school is also not restricted to the wards of the workmen and staff members of the company. The expenditure was treated as donation. The Hon'ble Jurisdictional High Court in the case CIT Vs. Rajasthan Spinning & Weaving Mills Ltd.,(supra) observed that the question of claim to deduction of any amount spent by the assessee as expenditure laid out wholly and exclusively for the purpose of assessee's business is not to be decided in the light that the assessee must be entitled to the whole benefit accruing from such expenses and nobody else should be sharing this benefit as is derived by the assessee by dint of such expenses. The Hon'ble Bombay High Court in the case of CIT Vs. B.C. Shirke & Co., 264 ITR 83 had an occasion to consider the allowability of contribution to the three trusts formulated for the welfare of the employees. The Hon'ble Bombay High Court in this case has observed as under:- "Voluntary payments made by an employer for the general welfare and benefit of the employees on grounds of commercial expediency are revenue expenditure, deductible ....
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....e club membership has been paid in respect of 28 employees. It is noticed from the period mentioned in the chart that payments are annual subscription or subscription for part of the year. It is not a case where the assessee has paid corporate fee to the club. There is no payment for the period exceeding one year so that the benefit may be given to the employees for more than a year. The expenditure as club membership fee is an expenditure for the purpose of the business. Hence, the expenditure is allowable u/s 37 of the Act. Therefore, the ld. CIT(A) was justified in deleting the disallowance of Rs. 6,70,422/-." Admittedly, there is no change in the facts and circumstances of the case as compared to earlier years where the matter has been decided in favour of the assessee company. By respectfully following the order of the Coordinate Bench in assessee's own case for the A.Y. 2005-06, we uphold the order of the ld. CIT(A) for the impunged assessment year. Accordingly, this ground of the revenue's appeal is dismissed." Ground no. 4 relating to rent payment under section 40A(2)(b): "31. We have heard the rival contentions of both the parties and perused the....
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....asis of net present value as specified in that notification. Net present value has been mentioned as percentage of amount payable and such percentage varies as per the period of month between the actual date of payment and the extended date of payment. However Board Circular 496 dated 25.9.87 stated that statutory liability is to be treated as paid in case the State Govt. makes an amendment that sales tax deferred under the scheme is to be treated as actually paid. Benovelent Circular of Board are mandatory. The liability is not that of sales tax but it is a liability of loan. Hence the decision of special bench in the case Sulzer India Ltd. is squarely applicable. It will be useful to reproduce Head Note in the case of Sulzer India Ltd. "Business income-Profits chargeable to tax under s.41(1)-Payment of net present value against deferred sales-tax liability-Assessee company obtained incentive by way of sales-tax deferral schemes of 1983 and 1988 notified by the Government of Maharashtra-As per the said schemes, the sales-tax collected by the assessee during the period from 1st Nov., 1989 to 31st Oct., 1996, was to be paid after 12 years in six equal annual instalments-Fou....
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....ss or profession. Therefore, what is to be examined is whether the waiver of loan would amount to a perquisite so as to be taxable, as such, under s. 28. The Bombay High Court in the case of Mahindra & Mahindra Ltd. Vs. CIT (2003) 182 CTR (Bom) 34 : (2003) 261 ITR 501(Bom) : (2003) 128 Taxman 394 (Bom), has explained that s. 28(iv) seeks to charge the value of any benefit or perquisite, meaning thereby that the benefit must be in kind; the Court further held that waiver of loan is in respect of money transaction and, therefore, would not be in nature of any benefit or perquisite as construed in s. 28(iv). 2.21 The argument of the ld. DR that scheme of Rajasthan Govt is different is not of relevance. In the case of Maharashtra, the scheme of receipt of prepayment of loan was by a State Corporation while in Rajasthan it has been implemented by State Govt. The implementing agency may be different but the nature of the scheme is the same 2.22 We therefore hold that Ld.CIT(A) was not justified in confirming the addition of Rs. 12,06,33,254/- as provisions of section 41(1) are not applicable. For the case of A.Y. 2007-08, the Coordinate Bench in ITA No. 374/JP/....
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.... 271C for AY 2008-09 and AY 2009-10 and a show-cause was issued to the assessee. After examining the reply of the assessee but not agreeing to the same, the Assessing Officer disallowed payment of Rs. 1,58,71,98,115/- u/s 40(a)(ia) of the Act. 7. Being aggrieved, the assessee carried the matter in appeal before the ld CIT(A) and his relevant finding of the CIT(A) are reproduced as under:- "4.132 Discussion and the Appellate Decisions I have gone through Assessing Officer's findings and Assessee's submissions The payment covered u/s 194J covers fees for professional or fees for technical services. The payment made to lawyers, advocates, CAs, architects, are covered u/s 194J. Whereas payments u/s 194C covers payment for work contract. Payments for construction of Roads, building, excavation, transportation etc are covered u/s 194C. In my opinion the payment covered u/s 194J were related to use of technical or professional knowledge of an individual and only a small part of fees paid may be related to material consumed or equipment used or expenses actually incurred. E. g. A lawyer's fee is mostly for use of his expert knowledge....
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....f raising the sale bill [whether the transportation charges are embedded in the cost of gas or shown separately) does not alter the basis nature of such contract which remains essentially a 'contract for sale' and not a works contract' as envisaged in section 194C of the Act. Hence in such circumstances, provisions of Chapter XVII-B of the Act are not applicable on the component of Gas Transportation charges, paid by the purchaser to the Owner/seller of the gas. The use of different modes of transportation of gas by owner/seller will not alter the position." The Hon'ble ITAT vide its order dated 18.02.2013 [appeal No. 337 & 338/JP/2012] in the case of assessee, while deciding the issue of charging of interest u/s 201(1A) and TDS u/s 201 has held as under:- " In our considered opinion, a contract, which is intended to be a contract for sale of goods [for delivery], cannot be construed as anything else but a contract of sale. Accordingly, no duty is cast, in the facts and circumstances of the case, on the assessee company to deduct any TDS either u/s 194C of 194J of the Act. Therefore, interest charged u/s 201(1A) of the Act for alleged short deduction of t....
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....gh Court has held that the payment of gas transmission charges are not subject to levy of TDS, there is no question of disallowance u/s 40(a)(ia) of the Act. In the result, ground no. 9 of revenue's appeal is dismissed. ITA No. 412/JP/2013 10. Now, coming to assessee's grounds of appeal, other than common grounds of appeal which we shall be discussing subsequently. 11. In Ground no. 3, the assessee has challenged the action of ld CIT(A) in confirming the action of AO in holding that education cess of Rs. 3,05,18,573/- is a disallowable expenditure u/s 40(a)(ii) and not allowable expenditure u/s 37. 12. Both the parties submitted that the issue is covered against the assessee and in favour of the revenue by the decision of the Coordinate Bench ITA No. 459 & 558/JP/2012 dated 28.10.2016. 13. We now refer to the relevant findings of the Coordinate Bench in ITA No. 459 & 558/JP/2012 dated 28.10.2016 which are reproduced are as under:- "63.1. Now coming to the contention of the AR that where the legislature wanted certain taxes other than income-tax to be excluded for the purposes of computation of taxable income, it has specially provided for the same. The instances a....
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....llant did not lift the material from the warehouse of 'NATIONAL AGRICULTURAL COOPERATIVE MARKETING FEDERATION OF INDIA LTD' (NAFED) and sent a request to NAFED to waive the penal godown rent for such period. However NAFED did not accept the request and the same was conveyed to the appellant after closure of the financial year vide letter received by the assessee on 26.04.2008, hence the appellant booked the expenses in financial year 2008- 09 through document no. 100107966 dt. 15.10.2008. As far as the assessee is concerned the liability to pay only crystallised in the assessment year 2009- 10. 3. Rs. 267,780.00:- During the financial year 2007-08 the appellant arranged a tour for its business associates through M/s Lionel Holdings. Initially and gave an advance of Rs. 8,71,600/- to M/s Lionel Holidays and the balance amount was to be settled after receipt of the final bill. However, the final bill was misplaced at the appellant's office and was finally traced in December 2008 and the same was processed through document no. 100135535 dt. 31.12.2008. It is humbly submitted that if for any reason the claim of deduction for expenditure is for any reason not allowed in AY 2009....
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....year, it was contesting its liability to pay the godown rent which was finally crystallised during the year under consideration and accordingly, the same was claimed as an allowable expenditure. Similar is the position regarding travel bill of Rs. 267,780, the same was finally traced and processed in December 2008. There is no dispute that all these expenses have been incurred for the purposes of the business and all are duly supported by verifiable documentation which has been produced and available on record. Further, it is not the case of the Revenue that the tax rates have changed from last year and any prejudice have been caused to the Revenue. In the entirety of facts and circumstances of the case, we set-aside the order of the lower authorities and the AO is directed to allow these expenses as an allowable expenditure in the hands of the assessee. In the result, ground no. 4 of assessee's appeal is allowed. Common grounds of appeal 20. Now, we refer to the common grounds of appeal wherein both the parties are in appeal before us against the findings of the ld CIT(A). 21. Regarding ground No. 10 of the Revenue's appeal and ground No. 5 of the assessee's appeal relati....
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.... have considered the issue, which he failed to do therefore the same is being considered by me. The Hon'ble ITAT has directed that in case the AO comes to conclusion that the capital expenses amounting to Rs. 1,73,53,860/- included in the cost of mining rights i.e. non-tangible assets then such cost may be considered to be deducted against the sale of mining rights in the assessment year 2009-10. Therefore the assessee was asked to furnished details of these expenses which were included in the mining rights. The assessee submitted that amount of Rs. 87,45,400/- were paid to M/s ANS construction for dismantling of existing structure, fencing of boundary, construction of temp. site office and security in plant area. Firstly from the above nothing could be concluded [no details were produced], secondly it's connection to mining was not proved. From the details already in the order of ITAT it can be concluded that of Rs. 8608460/- related to deep excavation and road work were related to mining operation and treated as included in sale of mining rights. Whereas misc. Capital expenses of 87,45,400/- [in absence of details] cannot be treated as related to mining rights. ....
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....ding ground No. 7 of the Revenue's appeal and ground No. 3 of the assessee's appeal relates to disallowance of interest on loan on account of investment in Mutual Funds. The AO has disallowed interest of Rs. 12,90,03,457/- which was reduced to Rs. 1,79,04,632 by the ld CIT(A) and now both the parties are in appeal against the action of the ld CIT(A). 25. Briefly, the facts of the case are that during the course of assessment proceedings, the Assessing Officer observed that the assessee company has declared dividend income of Rs. 4,89,31,413/- on Mutual Funds which has been claimed as exempt income u/s 10(35) of the Act. The Assessing Officer further observed that total investment of Rs. 699.45 Cr has been made in units of various Mutual Funds during the year out of cash credit account maintained by the assessee with HDFC Bank, New Delhi. A show cause notice was issued to the assessee to explain why disallowance be not made out of interest paid on borrowed funds as per section 14A of the Act and also because the assessee has failed to prove any commercial expediency. In response, the assessee submitted that the investment in the Mutual Fund units have been made for very short ter....
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....e regular business of the company. Additionally, the efforts put to do such investment in Mutual Funds were miniscule and very low as compared to the other banking transactions of the Company as a whole. There were very few transactions of investment in the Mutual Funds during the whole of the Assessment Year under consideration. The major investment in the Mutual Funds were made during December 2008 to March 2009 from the HDFC Bank Account and the bank has charged cash credit interest of only Rs. 3,87,800/- during the period from December 2008 to March 2009. However, the L'd Assessing Officer calculated notional interest based on the period of holding of the security without considering the actual interest paid during the relevant period. Considering the above, it is humbly submitted that the addition made on this account deserves to be deleted. Written submission dated 17.09.2012: "It is humbly submitted that an amount of Rs. 4,89,31,413/- being dividend income was earned on Mutual Funds, which has been claimed as exempt income u/s 10(35) of the Act. The investments in the Mutual Funds were made out of the surplus short term funds available within the busines....
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.... 2 Reliance Mutual Fund 450,000,000.00 17-Jan-08 Invested for 1 days 450,000,000.00 4-Aug-08 Invested for 1 days 500,000,000.00 5-Dec-08 Sale of Fertiliser Bonds 3 Birla Mutual Fund 125,000,000.00 5-Dec-08 Sale of Fertiliser Bonds 375,000,000.00 7-Dec-08 Sale of Fertiliser Bonds 4 ICICI Prudential Mutual Fund 335,000,000.00 10-Dec-08 Collection from sales & NCD's 165,000,000.00 29-Jan-09 Collection/FD Matured/NCD,s 5 Kotak Mutual Fund 250,000,000.00 25-Feb-09 Redemption of Mutual Funds 250,000,000.00 19-Mar-09 Redemption of MF & Collection 6. Franklin Templeton Mutual Fund 500,000,000.00 25-Feb-09 Redemption of Mutual Funds 7 Fortis Mutual Fund 250,000....
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....at part of the investment was from its own funds (internal accrual) and disallowance related to same has to be deleted. It was also seen that part of the interest bearing loans were repaid out of internal accrual and actual interest paid was lesser than one computed by Assessing Officer. In my opinion the disallowance has to be restricted to lower of interest payable and interest paid. The disallowance on this basis is computed as under:- 1. Interest on 19.45 Cr. 3 days 2,11,818 2. Interest on 40.00 Cr. 1 day 1,45,205 3. Interest 45.00 Cr. 1 day 1,63,356 4. Interest 45.00 Cr. 1 day 1,63,356 Sr. No. 5, 6, 7 (of statement of investment referred above) were invested out of realization from sale of fertilizer Bonds. As fertilizers bonds were issued by Govt. of India, the same is part of assessee's internal accrual and no interest disallowance was required. Out of remaining it was seen that the investment were from collection, redemption of MF, sale of fertilizer bonds, maturity of FDs and NCD's. Out of there except NCD all other items relate to internal sources. On these amounts relate....
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....dingly interest of Rs. 1,79,04,632.19 was found to be related to amount paid to mutual fund as the income from mutual funds is exempt, corresponding interest is held to be not allowable. Accordingly addition of Rs. 1,79,04,632/- is confirmed. The Assessing Officer is directed to delete balance addition of Rs. 11,10,98,825/-. This ground of appeal is, therefore, partly allowed." Our findings 28. We have heard the rival contentions and purused the material available on record, the written submissions, the findings of the AO and the ld CIT(A). In its written submissions dated 5.11.2012 filed before the ld CIT(A), the assessee company has submitted a statement showing the sources of funds in respect of investment in mutual funds units and has contended that all the investments have been made from surplus funds and no loan fund is invested in the Mutual Funds except from the NCD money. As regards NCDs, it was further submitted that NCD's of Rs. 60 Crores were availed on 10.12.2008 and was repaid between 11th to 15th December and NCD's of Rs. 50 crores were availed on 29.01.2009 and was repaid on 9th February 2009. It was submitted that the maximum utilization of borrowed ....
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..... 1 of the assessee's appeal, the facts of the case are that during the relevant assessment year, the assessee company increased its investment in unquoted shares of CFCL Overseas Limited (a foreign Company) and in the equity shares of Chambal Infrastructure Ventures Limited (an Indian Company) as under:- S. No. Name of the Wholly owned subsidiary company Amount (Rs. in lac) 1 CFCL Overseas Limited, Cayman Islands 523.94 2 Chambal Infrastructure Ventures Limited 120.00 As per the AO, there is clear-cut, direct and proximate nexus between the interest bearing borrowed funds out of the cash credit accounts and nil income earning investment made by the assessee. Further, the assessee failed to prove any commercial expediency to make investment in above subsidiary companies. The AO accordingly disallowed an amount of Rs. 78,47,330 determined using the rate of interest of 13.25/12.75% per annum payable on the cash credit accounts from where such investments were made. 33. Being aggrieved, the assessee carried the matter in appeal before the ld CIT(A) and submitted that CFCL Overseas Limited was incorporated as a Special purpose vehicle for consolid....
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....e assessee. This was amply proven to the L'd Assessing Officer. The amounts invested in the subsidiaries have been shown under the head "Investments". The L'd Assessing officer however has, without proving a nexus between the amounts invested in subsidiary companies and interest paid on borrowed funds, has added an amount of 78.47 lacs. The following decisions further support the contention of the appellant:- * DCIT v/s Banc of American Securities (India) (128 ITD386) * Gujarat State Export Corporation Ltd. v/s CIT (209 ITR 649) Considering the above submission, it is requested that the addition in respect of notional interest of Rs. 78.47 lac may kindly be deleted. "Without prejudice to the contention of the assessee that the investments were made out of the surplus earned by the assessee, and that the investments had a direct nexus to the existing business of the assessee, we submit that the interest disallowed cannot in any case exceed the interest actually charged by the bank. On this basis we have made a calculation of maximum interest that could be considered, which works out to Rs. 47.11 Lakhs. This calculation is without prejudice to the conten....