TaxTMI 
TaxTMI 
TaxTMI 
2017 (10) TMI 53
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..... 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 interest paid on borrowed funds to Rs. 37,65,316/- as against that of Rs. 78,47,3....
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....d 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 deduction of Rs. 1,73,53,860/- for the expense incurred against the sale of mining rights and thereby not reducing the short term capital....
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....orkmen 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 under section 37 of the Income- tax Act. Such expenditure has nexus with the conduct of business and the expenditure incurred for maintaining industrial peace a....
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....ere 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 material available on the record. The ld CIT(A) has given a finding that the employees of the assessee company stayed at the guest house in respect of which an amount of Rs. 10,80,000 has been paid as rent. Further, the Reven....
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....ever 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-Fourth proviso to s. 38(4) of Bombay Sales-tax Act, 1959 provides that where an entitlement certificate has been granted to the eligible unit for availing of the incentives by way of deferment of sales-tax, etc. such unit may, at its option prematurely pay an amoun....
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....: (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/2010 has held as under:- "16.2 Following our order for the assessment year 2005-06 (supra) we hold that the ld. CIT(A) was not justified in holding the receipt of Rs. 1,74,49,093/- as capital receipt." During the course of hearing, the ld AR submitted the year-wise breakup of amount of....
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....efore 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 and fee paid hardly relates to expenses on material consumed or equipment [computers etc] used. Same is the case when payment is made to an Architect, CA, or a company secretary etc. Whereas the payment covered u/s 194C are related to actual consumptions of material or use of equipments and very small amount may be related to use of expert know....
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....ortation 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 tax has been correctly set aside by the ld. CIT(A). The fact that the assessee was deducting TDS u/s 194 C was stated to be on account of abundant caution taken by the assessee. This conduct of the assesee, being taken to be on the safer side cannot be treated adversary to its interest as has been canvassed by the department." In the case of assessee the payment of Rs. 158,71,98,115/- was made to GAIL and IO....
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....(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 are amounts paid as wealth-tax, securities transaction tax and fringe benefit tax in section 40 of the IT Act. Had there been any intention of disallowing education cess, such provision would have been specifically been enacted which has not been done. We have given a careful consideration to the aforesaid contention of the ld AR but we are afraid we are unable to accede to the same. As we have already held above, the basis character of education ce....
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....7966 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 2009-10, direction may kindly be given to allow the same in AY 2008-09." 17. The relevant findings of the CIT(A) are reproduced as under:- "4.122 The issue is dealt separately for each item, as under:- (i) Rs. 943,693 :- the ITR for AY 2008-09 could be revised on or before 31.03.2010. The assessee filed it's return for AY 2009-10 on 30.09.2009, when the time for revising return for AY 2008-09 was still available. Therefore the assessee is held to be not entitled for deduc....
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....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 relating to deduction against sale proceeds of mining rights, the relevant facts and findings of the ld CIT(A) are reproduced as under:- "4.142 The assessee claimed expenses of Rs. 24553629/- in AY 2004-05 as new project expenses. The same were related to cement project being setup but the same could not be materialized. The Assessing Officer disallowed the same and while deciding the issue Hon'ble ITAT has held as under (order dated 28/07/2011, ITA No. 959/JP/2007):- "The new project was being set up under ....
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....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. Therefore the AO is directed to allowed deduction of Rs. 86,08,460/- from sale proceeds of mining rights. This ground of appeal is, therefore partly allowed." 22. The ld AR drawn our reference to the order of the Coordinate Bench for AY 2004-05 and the submitted that the whole of the expenses amounting to Rs. 1,73,53,860 has been directed by the Coordinate Bench to be allowed as deduction against sale of mining rights in AY 2009-10 and accordingly, the same should be allowed. Our findings 23. We have heard the rival contentions and purused the material available o....
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....imed 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 term period and were made out of surplus cash available from the assessee from time to time. It was further submitted that major investments in the Mutual Funds were made during the period May 2008 to March 2009 from the HDFC Bank and the bank has charged cash credit interest of Rs. 3,87,800/- during the period from December 2008 to March 2009. However, the Assessing officer did not accept the submission of the assessee and computed interest payable on the funds invested in units of Mutual Funds at 13.25% per annum which is payable by the assessee on cash credit facility availed fro....
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....icer 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 business during that period. There were no specific/direct borrowings for the investment. The copy of the bank statements reflecting entries relating to investment in the Mutual Funds were duly submitted during the course of assessment proceedings. A copy of the same is also annexed herewith at Annexure 5. As surplus fund were invested in the Mutual Funds, the appellant did not incur any interest expenditure relating thereto. The investment in Mutual Funds was based on the availability of surplus fund. The assessee would never borrow at prohibitive interest rates and invest to earn a meagre 9% odd. It is f....
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....d 500,000,000.00 25-Feb-09 Redemption of Mutual Funds 7 Fortis Mutual Fund 250,000,000.00 19-Mar-09 Redemption of MF & Collection 8 SBI Mutual Fund 300,000,000.00 10-Dec-09 Collection from sales & NCD's 200,000,000.00 29-Jan-09 Collection/FD Matured/NCD,s 250,000,000.00 19-Mar-09 Redemption of MF & Collection 9 HDFC Mutual Fund 500,000,000.00 25-Feb-09 Redemption of Mutual Funds 10 JP Morgan India Mutual Fund 500,000,000.00 25-Feb-09 Redemption of Mutual Funds 11 JM Mutual Fund 362,500,000.00 8-Dec-08 Sales of Fertiliser Bonds 250,000,000.00 2-Jan-08 Sales of Fertiliser Bonds 137,500,000.00 29-Jan-09 Collection/FD Matured/NCD,s 12 Tata Mutual fund 500,000,000.00 29-Jan-09 Collection/FD Matured/NCD,s Total 6,994,500,000.00 As can be seen from the above, all the investments have been made from surplus funds and no loan fund is invested in the Mutual Funds except from the NCD money. NCD's of Rs. 60 Crores were availed on 10.12.2008 and was repaid between 11th to 15th December i.e. the maximum outstanding was ....
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....ment Amount of Investment Date of Investment Date of Redemption Rate of Interest Interest Lotus Mutual Fund 194,500,000.00 13-Jun-08 16-Jun-08 13.25% 211,818,.49 Lotus Mutual Fund 400,000,000.00 17-Jun-08 18-Jun-08 13.25% 145,205,.48 Reliance Mutual Fund 450,000,000.00 17-Jun-08 18-Jun-08 13.25% 163,356,.16 450,000,000.00 4-Aug-08 5-Aug-08 13.25% 163,356,.16 Total 683,736.30 2. ACTUAL INTEREST CHARGED ON CC A/C WITH HDFC BANK FOR THE PERIOD DEC. 08 TO MARCH 09 (W.R.T. INVESTMENT MADE OUT OF FUNDS). BANK DEC. 08 JAN. 09 FEB. 09 MARCH 09 TOTAL HDFC 246,866.00 19,047.00 79,927.00 41,960.00 387,800.00 3. INTEREST OF NCDS FOR THE PERIOD 10/12/08 TO 31/03/09 ON NCD OF 60 CRORES AND 50 CRORES CALCULATED AT AVG. RATE OF NCE INTT. FOR THE RELEVANT MONTH Amount From To NCD Rate Int. Interest 120,000,000 10-Dec.-08 31-Dec-08 8.49% 614,071,2329 150,00,00.00 10-Dec.-08 31-Dec-08 8.49% 767,589.0411 330,000,00.00 10-Dec.-08 31-Dec-08 8.49% 1,688,695,.8904 600,000,000.00 1-Jan-09 31-Jan-09 6.83% &n....
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..... The next question that comes is the determination of interest on such borrowed funds which have been utilised for making the investments in the mutual fund units. In this regard, we have gone through the findings of the ld CIT(A) and confirm his findings regarding disallowance of Rs. 683,736 for the reason that no specific source has been pointed out by the assessee for making the subject investments in the mutual fund units and it has been established that the amount so invested has been drawn out of the borrowed funds withdrawn from the cash credit account. We also confirm the findings of the ld CIT(A) regarding disallowance of Rs. 387,800 which is the actual interest charged by the HDFC bank on the cash credit account during the period Dec 2008 to March 2009 when the major investment has been made by the assessee in the mutual fund units and the funds have been withdrawn from the cash credit account. 30. As far as disallowance of interest on NCD is concerned, we find that the ld CIT(A) has worked out the interest without taking into consideration the fact that these NCDs of Rs. 60 Crores were availed on 10.12.2008 and were repaid between 11th to 15th December and NCD's of Rs.....
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....x credit) during the year. The investment in subsidiary companies was made out of internal accruals generated by the company. The position of its Reserves and Surplus as on 31.03.2009 are hereunder:- a) General Revenue Rs. 13,695.36 lac b) Profit and Loss Account Rs. 62,843.32 lac The payments for the investments were made through the company's bank cash credit account; however, it does not exactly denote the borrowings as the company does not maintain its profit from operations in a separate bank account rather parks the same into its cash credit bank account to reduce the interest cost. The banking account is a running account where payments are issued and collections are deposited. The increase/decrease in borrowings is due to increase/ decrease in operational requirements. The investment of Rs. 1.20 crores was made on 19.08.2008 and there was a negative bank balance on that day, which has reduced to Rs. 27.87 lac by 22.08.2008; in other case, the investment of Rs. 5.24 crores was made on 03.04.2008, which resulted into a negative balance of Rs. 2.13 crore on that day in the bank account. The negative balance was further reduced to Rs. 0.03 crore on 22.04.2008 and later o....