AI Drafter 
TaxTMI 
TaxTMI 
2018 (8) TMI 1250
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....-tax (Appeals) [hereinafter referred to as "the CIT (A)"] erred in law and on facts in upholding that the transactions of lease of various assets were mere financing transactions and the Appellant was therefore not entitled to depreciation allowance of Rs. 33,90,43,696 under section 32 of the Act. 2. The learned C1T(A) erred in law and on facts in confirming disallowance of Rs. 33,333 in respect of amount paid for late payment of sales tax. 3. The Learned CIT (A) erred in confirming the disallowance under section 14A of the Act of Rs. 39,31,00,000 out of interest and further sum of Rs. 10,00,000 out of expenses made by the Assessing Officer under section 14A of the Act. 4. The learned CIT(A) has erred in law and on facts in confirming disallowance of software license fees." 2. The brief facts of the case are that the assessee company which is engaged in the business of finance company including hire purchase leasing, bill discounting, hypothecation finance, investment and credit card business, filed its return of income for AY 2000-01 on 30-11-2000 declaring total loss of Rs. 45,49,23,020. The case was selected for scrutiny and assessment has been comp....
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.... on leased assets. The Ld.AR for the assessee at the time of hearing submitted that the issue is covered in favour of the assessee by the decision of ITAT, Mumbai Bench in assessee's own case for AY 1999-2000 in ITA No.2997/Mum/2006 dated 24-01-2018 wherein the ITAT by following the order of ITAT for AY 1996- 97 deleted addition made by the AO. 5. We have heard both the parties and perused the material available on record. The issue of depreciation on sale and lease back of assets is no longer res integra. The coordinate bench of ITAT in assessee's own case from AY 1997-98 onwards, by following the decision of Hon'ble Supreme Court in the case of ICDS vs CIT 350 ITR 527 (SC) and also the decision of Hon'ble Bombay High Court in the case of CIT vs Apollo Finvest India Ltd in ITA 2298 of 2013 held that the assessee is eligible to claim depreciation on assets sold and leased back. The relevant portion of the order is extracted below:- 5. We have considered the rival .submission of the parties and perused the material available on record carefully. Besides the year under consideration, the Id. CIT(A) sustained the similar disallowance of depreciation of leased asset for AYs....
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....reements, confirmation letters and other relevant material. As the existence of assets and their use is in doubt, so, the AO, in our opinion was not justified in denying the claim of depreciation made by assessee. We also find that FAA had allowed depreciation @50%, as the assets were used for less then 180 days during the year under consideration- It is also a fact that two of the lessees are state electricity boards i.e. APSEB and RSEB. Both of them have confirmed t)'C lease transaction and installation of machinery/ assets. The FAA had observed that it could not be alleged that govt. undertakings had colluded with I e assessee to mislead and defraud the govt. of'its revenue by giving wrong confirmations. So, we do not see any infirmity in the order of the FAA. Confirming his order, we decide the Ground No. 11 against the AO." Thus, considering the decision of Tribunal in assessee's own case on identical grounds of appeal, which was decided on the identical fact, we find that this ground of appeal is covered in favour of assessee and against the revenue. The coordinate bench decided the identical ground of appeal on the basis of decision of Apex Court in case....
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.... as administrative expenses is concerned, the assessee did not want to press the ground taken for challenging disallowance of administrative expenses incurred in relation to exempt income. 9. We have heard both the parties and perused the material available on record. The issue of disallowance of proportionate interest u/s 14A of the Act, has been considered by the ITAT in assessee's own case for AY 2005-06 in ITA No.630/Mum/2012 and after considering relevant facts and also by following the decision of Hon'ble Bombay High Court in the case of HDFC Bank Ltd vs CIT 383 ITR 529 (Bom) and Reliance Utilities & Power Ltd vs CIT 318 ITR 340 (Bom) held that when own funds in the form of share capital and reserves is in excess of amount invested in shares and securities which yielded exempt income, then no disallowance can be made towards interest expenditure u/s 14A of the Act. The relevant portion of the order is extracted below:- "16. We have considered the rival submission of the parties and have gone through the orders of authorities below. We have noted that similar ground of appeal was raised by the assessee in earlier assessment year as submitted by learned AR of the as....
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.... income. Thus, respectfully following the decision of Co-ordinate we restrict the disallowance n/s 14A to 1% of the exempt income and the AO to work out the disallowance accordingly." 17. Considering the decision of Tribunal in assessee's own case as referred as referred above, wherein the identical ground above, wherein the identical ground of appeal was dismissed in appeal for assessment years 1999-2000 to 2002-03. We direct the assessing officer to restrict the disallowance under section 14 A to 1% of the dividend income. In the result the ground of appeal raised by the assessee is allowed." 10. Insofar as disallowance of administrative expenses, the ITAT has directed the AO to restrict disallowance @1% of dividend income. In this year, the AO has adopted different method to quantify disallowance of administrative expenses and made adhoc disallowance of Rs. 10 lakhs. Since, the assessee has not pressed the ground taken to challenge disallowance of administrative expenses, we direct the AO to sustain addition made towards adhoc disallowance of administrative expenses of Rs. 10 lakhs u/s 14A of I.T. Act, 1961. 11. The next issue that came up for our consideration fr....
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....e non recoverable and the same has been written off as bad debt. The transaction of bill discounting is particularly an advance against the security of the bill and the discount represents interest on the advance from the date of purchase of the bill only when it is due for payment. The assessee recognised interest received on bill discounting as its income. Any amount of loan outstanding in respect of bill discounting represents money lent in the ordinary course of business of banking or money lending and if the same is written off as bad debt, which fulfils the conditions prescribed u/s 36(1)(iii) and 36(2) of the Income-tax Act, 1961. The Hon'ble Bombay High Court in the case of Shreyas M Morakia vs CIT (supra) has considered similar issue in the light of provisions of section 36(1)(vii) r.w.s. 36(2) and held that in a case of share broker, unrealised value of shares from clients are deductible u/s 36(1)(vii) if brokerage is taken into P&L account. In this case, the assessee is in the business of finance and money lending, in the process, engaged in the business of bill discounting. In bill discounting business, the assessee recognised discounting charges as its income and hence....
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.... the trucks by the assessee to others for consideration amounts to running the same on hire and will entitle the assessee to claim higher depreciation." 18. In this view of the matter and consistent with the view taken by the co-ordinate bench, we direct the AO to allow depreciation as claimed by the assessee. 19. The next issue that came up for our consideration is denial of exemption claimed u/s 54EA of the Income-tax Act, 1961, before setting off of long term capital loss. The facts with regard to the impugned dispute are that during the year under consideration, the assessee has claimed exemption u/s 54EA before setting off long term capital loss of Rs. 3,26,16,950. The AO has denied the benefit of carry forward of set off of long term capital loss of Rs. 3,26,16,950 on the ground that before claiming exemption u/s 54EA of the Act, the assessee shall first set off short term capital loss against long term capital gain. It is the claim of the assessee that the benefit of exemption claimed u/s 54EA shall be allowed first against long term capital gain derived from transfer of any asset before allowing set off of short term capital loss. The assessee further claimed that the....
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....ext issue that came up for our consideration is disallowance of expenditure incurred in relation to exempt income being proportionate interest disallowance and adhoc disallowance of administrative expenses. The AO has disallowed proportionate interest of Rs. 41.26 crores and for administrative expenses 2% of dividend income. The Ld.CIT(A) restricted total disallowance worked out by the AO to 5% of exempt income. 24. We have considered similar issue in ITA No.1490/Mum/2012 for AY 2000-01 and held that no disallowance can be made towards proportionate interest disallowance; however, sustained addition made by the AO towards adhoc disallowance of administrative expenses. In this case, the facts in respect of disallowance of proportionate interest is similar to the facts already considered by us in ITA No.1490/Mum/2012; however, in respect of administrative expenses, the AO has adopted different method to compute disallowance and accordingly made 2% disallowance on dividend income. The reasons given by us in ITA No.1490/Mum/2012 in respect of interest disallowance shall mutatis mutandis apply to this appeal also. Therefore, for the detailed discussion in the foregoing paragraphs in ....
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.... to the fact that the assessee is following method of accounting whereby it is accounting interest and late payment charges on NPAs on accrual basis; however, for the purpose of taxation, the same is considered on receipt basis. The AO has made addition towards late payment compensation charges only on the ground that the assessee is following mercantile system of accounting and hence, whatever charges levied on loans and advances including interest, needs to be accounted for on accrual basis whether the same has been received or not. We do not find any merit in the findings of AO for the reason that it is a well settled principle that once the recovery of principal amount itself is in doubt, the question of accounting interest accrued on such NPAs is against the principles of real income theory. This legal proposition is supported by the decision of Hon'ble Supreme Court in the case of CIT vs Vasisht Chay Vyapar (supra) wherein the Hon'ble Apex Court held tht income from NPAs should be assessed on cash basis and not on mercantile basis despite the assessee following the mercantile system of accounting. Since late payment compensation charges are akin to interest, the same principl....
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....al is disallowance of advertisement expenditure u/s 37(1) of the Income-tax Act, 1961. The AO has disallowed a sum of Rs. 2 lakhs debited under the head 'advertisement expenditure' being amount paid to Sarvajanik Ganesh Mandal, Marol on the ground that expenditure incurred towards contribution for hosting Ganesh Festival has no relevance to the business promotion of the assessee and it does not have any advertisement value. It is the contention of the asseswsee that installation of banners and posters bearing the name of the company is a mode of advertisement and is an allowable expenditure u/s 37(1) being wholly and exclusively incurred for the purpose of business. 30. Having heard both the sides, we do not fine any merit in the argument of the assessee for the reason that expenditure incurred for payment to an organisation for celebrating Ganesh Festival is having a nexus with business activity of the assessee. The assessee has paid an amount of Rs. 2 lakhs to Sarvajanik Ganesh Mandal, Marol for celebration of festival. There is no nexus between expenditure incurred by the assessee and business activity. Therefore, we are of the considered view that the AO was right in disallo....
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....re incurred for any purpose which is an offence or which is prohibited by law and hence, not allowable as deduction. The AO made disallowance of Rs. 57,79,00,000 being interest @12% p.a. on the amount of Rs. 48,159.54 crores of loans and advances given to subsidiary company. The AO has calculated notional interest on said loans and advances and disallowed u/s 37(1) of the Act. It is not a case of AO that the assessee has paid any fine or penalty for contravention of RBI guidelines issued to NBFCs for not following prudential norms. The AO also not brought out any facts with regard to the violation of any law and the RBI has passed any order imposing penalty or fine on the assessee. The AO has taken a clue from the Notes to Accounts given by the assessee in its financial statements, which states that the assessee has given loans and advances to a single entity in contravention of RBI guidelines issued to NBFCs. Except this, nothing has been brought on record to indicate that the assessee has incurred an expenditure of Rs. 57.79 crores in contravention of RBI guidelines which comes within the ambit of Proviso to section 37(1) of the Act. The AO has not brought any materials against t....