TaxTMI 
TaxTMI 
2017 (1) TMI 1676
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....ara 5, pages 2 of the CIT(A) Order] 2. On the facts and circumstances of the case and in law, the CIT(A) erred in not assessing Rs. 2,28,15,80,396 as long term capital loss in respect of write-off of shares and debentures made in certain companies." At the outset, the learned Counsel for the assessee stated that an identical issue has been decided by the Tribunal in favour of the assessee in assessee's own case in ITA No.5424/Mum/2001 wherein vide Para 7.2 and 7.3 of the order dated 13-07-2016. 3. We find that the AO noticed from the accounts of the assessee that profit on sale of investments was arrived at after providing for write off of investments of Rs. 228,15,80,396/- and this was claimed as deduction in the computation of filed along with the return of income on account of diminution in the value consequent to write off of investments. The CIT (A) confirmed the disallowance claimed by the assessee by observing in Para 5 and 5.1 of his order as under:- "5. Ground Nos. 9,10,11 & 12 raised by the Appellant challenge the action of the AO in not assessing Rs. 228,15,80,396/- as Long Term Capital Loss in respect of write of shares and debentures. 5....
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....ext common issue in this appeal of the assessee and that of Revenue is as regards to the order of the CIT (A) partly confirming the interest expenses of Rs. 379,11,90,416/- incurred for earning interest free income from bonds instead of Rs. 174,37,66,592/- being only direct expenses thereby allowing only part expenses u/s 10(23G) of the Act. For this, the assessee has raised following grounds No.3 and 4:- "(B) Re: Deduction under section 10(23G) Rs. 3,79,1 1,90,416 [Para 6, pages 2 S 3 of the CIT(A) Order] 3. On the facts and circumstances of the case and in law, the CIT(A) erred in partly confirming the interest expenses at Rs. 4,18,73,63,942 incurred for earning interest on tax free bonds instead of Rs. 1,74,37,66,592 being only direct expenses viz. interest on borrowings made for infrastructure financing and thereby allowing only part exemption under section 10(23G). 4. The CIT(A) also erred in not specifically dealing with the ground regarding guarantee commission excluded by the assessing officer while considering income exempt under section 10(23G) of the Act.". The Revenue has raised following ground....
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....tion of income out of borrowed funds (137,10,52,701*86.85%) B 1,190,752.329 Less: Expenses allowable (proportionate) 1,190,752,329*56.38% C 671,303.899 Net income exempt u/s. 10(23G) related to Borrowed bunds D (B-C) 519,448.430 Add: Gross income exempt u/s.10 (23G) E(A-B) Relating to owned fund 180,300.372 (137,10,52,710 - 119,07,329) Net income exempt u/s 10(23G) D+E 699,748,802 Less: Administrative expenses @1% of income received u/s 10(23G) 13,710.527 Net income exempt u/s 10(23G) 686,038.275 8.4 These facts have not been analysed by either of the lower authorities. In principle, we agree with the contention of the ld. Counsel that only those expenses which are relatable to earning of the exempt income can be deducted for ....
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....ore us now, as per the working of the expenses, the same was not analyzed by the lower authorities. Hence, we remit the mater back to the file of the AO for fresh consideration. The only differential fact in the present case is that the assessee itself has disallowed direct expenses of Rs. 174,37,66,592/- by way of interest expenses for earning of income u/s 10(23G) of the Act, which has been offered for disallowance. We also agree that only those expenses which are relatable to earning of exempt income can be claimed as deduction for computing net income u/s 10(23G) of the Act. In term of the above and in term of the direction of the Coordinate Bench of the Tribunal in assessment year 1997-98 in assessee's own case in ITA No.5424/Mum/2001, the AO will decide the issue. Accordingly, this issue of assessee's appeal is allowed for statistical purposes and the issue of Revenue's appeal is dismissed. 8. The next common issue in this appeal of the assessee is as regards to the order of the CIT (A) upholding the disallowance of depreciation claimed on assets leased during the year amounting to Rs. 756,62,50,507/-. For this, the assessee has raised the following ground No.5: - ....
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....e has raised the following ground No.6:- "(D) Re: Exemption under section 10(33)- Rs. 2,21,88,52,452 [Para 8, Page 4 of the CIT(A) Order] 6. On the facts and circumstances of the case and in law, the CIT(A) erred in partly confirming the interest expenses at Rs. 1,34,37,32,781 and managerial and administrative expenses @ 1% at Rs. 2,22,69,966 instead of Rs. Nil as declared by the Appellant." The Revenue has raised following ground No. 4(a) & 4(b):- "4(a) "On the facts and circumstances of the case and in law, the learned CIT(A) erred in holding that the computation of exemption uls.10(33) of the I.T. Act made by the Assessing Officer deserves to be modified applying the formula as devised by him." 4(b) "On the facts and circumstances of the case and in law, the learned CIT(A) failed to appreciate that the Assessing Officer had worked out the interest cost attributable to investment in shares in a correct and logical manner." 12. We find that the assessee claimed exemption u/s 10(33) of the Act but the AO disallowed interest expenses and managerial & administrative expenses at Rs. 257.63 crore and Rs. 2.70 crore respectively and disallowed e....
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.... verify the facts. This issue of the assessee is allowed for statistical purposes and the issue in Revenue's appeal is dismissed. 14. The next two issues in this appeal of the assessee and that of Revenue are in regard to (i) deduction of share issue expenses and (ii) calculation for deduction u/s 36(1)(viii) of the Act. For this, the assessee has raised following ground Nos.7 and 9:- (E) Re: Deduction of share issue expenses-Rs. 73,32,08,329 [Para 9, page 4 of the CIT(A) order] 7. The CIT(A) erred in confirming the disallowance of expenses incurred for issue of shares on the ground that they are capital in nature. (G) Re : Calculation for deduction under section 36(1)(viii) [Para 14, Pages 7 & 8 of the CIT(A) order) 9. On the facts and circumstances of the case and in law, the CIT(A) erred in not accepting the working of special reserve in accordance with the method submitted by the Appellant in absence of a format/formula prescribed under section 36(1)(viii)." The revenue has raised following ground No.6: - "6. On the facts and circumstances of the case and in law, th....
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.... ground raised by assessee. We find that the assessee has raised following additional ground :- "G) Re: Calculation for deduction under section 36(1)(viii) (Para 14, Pages 7 & 8 of the CIT(A)(A) order) The CIT(A)(A) erred in removing the fund based commission and fees amounting to Rs. 1,94,31,55,445/- instead of the non-fund based commission amounting to Rs. 1,29,41,05,983/- from the business income to arrive at the income from finance." The learned Sr. DR only requested that let the calculation provided by assessee at page 142 of its paper book be verified by the AO. On this, learned Counsel has not objected. Hence, the matter in this regard is referred back to the file of the AO for verification purpose only. 17. The next two issues in this appeal of assessee are as regards to disallowance of depreciation on fixed assets and disallowance of interest on loan for building. For this assessee has raised following ground Nos.12 & 13:- "(H) Re : Disallowance of depreciation on fixed assets - Rs. 17,05,52,154 [Para 15, pages 8 & 9 of the CIT(A) order] 12) On the facts an....
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....cision of the Hon'ble Supreme Court in the case of Smiffs Securities Ltd. (supra) on the issue of depreciation and in term of Tata Chemicals (supra) on the issue of interest capitalization on building. Accordingly, these two issues are restored back to the file of the AO. 20. The next issue in this appeal of assessee is as regards to disallowance of deduction for provision for Bad Debts amounting to Rs. 272,94,72,271/-. At the outset, the learned Counsel for the assessee stated that she has instructions from the assessee not to press this ground and accordingly, the same is dismissed as not pressed. 21. The next common issue in this appeal of the assessee is as regards to charging of interest u/s 234B of the Act. The learned Counsel for the assessee as well as learned CIT DR fairly conceded that charging of interest u/s 234B of the Act in the present case is consequential in nature, hence, needs no adjudication. Accordingly, this common issue is infructuous and hence, dismissed. 22. The next issue in this appeal of assessee is against the order of CIT(A) upholding the erroneous addition of write backs previously sought to be taxed. This ground is common i....
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....see, it cannot be charged as profit u/s. 41. In support of this contention, she relied upon the decision of Hon'ble Apex Court in the case of United Provinces Electric Supply Co. (supra). However, as this claim was not made before the AO, he had not examined this aspect, i.e. whether the money is actually received by the assessee. As the matter has already been set aside by the AO (A) back to the file of the AO, in our opinion, the assessee should raised this plea before the AO. We accordingly, while upholding the setting aside of this matter back to the file of AO, direct him to examine the assessee's claim in the light of the decision of Hon'ble Apex Court in the case of United Provinces Electric Supply Co. (supra). He will also allow opportunity of being heard to the assessee". 28. Respectfully following Tribunal's decision in earlier year, we exactly on same directions, restore the matter back to the file of the AO for fresh adjudication. This issue of Revenue's appeal is set aside." 24. Respectfully following Tribunal's decision in earlier year, we exactly on same directions, restore the matter back to the file of the AO for fresh adjudication. This issue of ....
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....IT(A) after going through the decision of Hon'ble Bombay High Court in the case Bhor Industries Ltd (supra), allowed the claim of the assessee by observing para 13.3 as under: "13.3 I have looked into the facts of the case and submissions made. I find that the expenses incurred on VRS were incurred with a view to increase profitability by trimming out the man power with a view to modernize. The Appellant's case is clearly covered by the decision of Bombay High Court in the case of Bhor Industries Ltd., reported at 128 Taxation 626. The Appellant succeeds in ground No.38 & 39." Aggrieved, revenue preferred appeal before Tribunal. 29. Before us, revenue could not point out how the expenses are capital in nature and could not find fault with the findings of CIT(A). Even otherwise, the expenses on VRS are incurred wholly and exclusively for the purpose of business and hence revenue in nature and allowable entirely in the year in which these are incurred. Admittedly, these expenses are incurred in this very year, which is not in dispute. Accordingly, we confirm the order of CIT(A) and this issue of revenue's appeal is dis....
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....Sec.143(4) of the Act is concerned, the same has been deleted. Following the same, the AO is directed to delete the charge of interest u/s. 234 B in respect of the deemed tax payable as per Sec. 143 (4). The Appellant succeeds in part in this ground." 35. We find that this issue is covered by Coordinate Bench of this Tribunal in ITA No.4824 & 4825/Mum/2004 for A.Y. 1998-99 & 1999-2000, wherein in Tribunal after considering this issue dismiss the appeal of revenue by observing as under:- "29. The last common issue in these two appeals of the Revenue is as regards to the order of the CIT(A) deleteing charging of interest under section 234 B read with section 143 (4) of the Act. 30. After hearing both the sides, we find that the CIT(A) has rightly observed that no interest is payable under section 234 B of the Act on deemed tax payable under section 143 (4) of the Act. The CIT (A) is Para 15.2 observed as under:- 15.2 I have carefully considered the facts of the case and the submissions made before me. I find that the charge of interest under section 234 B is consequential and there was n....
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....8-99 by observing as under:- "11.2 A similar issue had come up for consideration in Appellant's own case for AY 1998-99, wherein in appeal order No.CIT(A)XII/AC.3(1)/IT-34/02-03 dated 10.03.2004, similar arguments were advanced on behalf of the Appellant and on similar facts, the decision has been taken against the Appellant. Following the same, grounds Nos. 33, 34 & 35 are decided against the Appellant." 39. We have heard rival contentions and gone through facts and circumstances of the case. Only limited issue for our adjudication is: "Whether Sub-section (4A) as inserted in section 41 of the Income Tax Act, 1961 by the Finance Act, 1997 with effect from 01.04.1998 to provide that where a deduction has been allowed in respect of "any special reserve created and maintained under sec. 36(1)(viii)" any amount subsequently withdrawn from such special reserve shall be deemed to be profits and gains of business and accordingly charged to tax as income of the year in which such amount is withdrawn but will it applies to the reserve created in the prior years i.e. up to AY 1997-98 or not?" The Ld. Counsel for the assessee argued that this issue is decided ag....
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....ng of section 36(1)(viii) was 'created' and now from AY 1998-99, the wording of section 36(1)(viii) is 'created and maintained'. The assessee is maintaining separate accounts i.e. one is for special reserve created upto AY 1997-98 and another is from AY 98-99 for the special reserve created and maintained. The amount withdrawn by the assessee undisputedly is withdrawn from the reserve created upto AY 1997-98; THERFORE, IT cannot said that the AO was not aware of the facts. The provisions of sec. 41(41A)cannot be applied for the simple reason that the amount withdrawn was from special reserve created upto AY 1997-98. The details were sought from the assessee. The complete details were filed and after examining the details and provisions of respective sections, the AO concluded that deduction claimed by the assessee was on higher side; therefore, he recalculated the deduction. Accordingly, in our considered view, the reopening of the assessee was merely on account of change of opinion." 40. Further Ld. Counsel explained that Section 36(1)(viii) of the Act permits deduction of an amount not exceeding 40% of the profits derived from the business o....
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....sence of any specific bar, an assessee was at liberty to use the special reserve so created at any point of time. It is this right which is sought to be taken away by the ITO relying upon the amendment introduced by Finance Act, 1997. She further argued that the deduction under sec. 36(l)(viii) of the Act is allowable each year subject to the creation of a special reserve out of the profits for the year derived from the eligible business. Prior to AY1998-99, an assessee was required to create a special reserve and there existed no other limitation with respect to such reserve. From AY 1998-99, an assessee had to create and maintain the special reserve and in the event of withdrawal suffer tax under Section 41 (4A). Thus, a special reserve created before AY1998-99 and from AY 1998-99 was governed by different conditions. She explained facts of the present case that the assessee created a separate special reserve for the financial year 1999-2000 terming it as "special reserve created and maintained in terms of sec. 36(1)(viii) of the Act" ('Special Reserve 2). The reserve created for the prior years was described as " special reserve created in terms of sec 36(1....
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....e identity and merges into "special reserve created and maintained" from AY 1998-99 onwards. The treatment given by an assessee in its books of account is not relevant and would not alter the above position. The AO has rightly held that the intention of legislature was not to distinguish the money withdrawn from reserve created upto AY 1997-98 and that after AY 1997-98. He has rightly given example of Section 115JA to buttress his finding that whenever the legislature wanted to allow deduction and make any exception, it has clearly specified it in the provisions itself. No exception has been provided in the provisions of the Act in this regard. On the other hand, Explanation to section 41(4A) makes it clear that even if the business is not in existence, the provisions of section 41(4A) shall apply where any amount is withdrawn from the special reserve. Thus, it is clear from reading of the provisions of section 36(1)(viii), 41(4A) and the Explanatory Note that section 36(1)(viii) was amended only to impose obligation for maintenance of "special reserve" which was already created and which would be created from AY1998-99 onwards. Accordingly, any money withdrawn both fro....
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.... special reserve 2 that is, special reserve created and maintained since AY1998-99. The assessee had withdrawn from the special reserve "created" upto AY1997-98. Such withdrawal would not attract the provisions of sec. 41(4A) for the reason that the condition for maintaining special reserve is an additional condition inserted by the amendment in order to avail of the deduction from AY 1998-99 onwards. The result of the amendment is to restrict the benefit granted by the said section. Such a restriction cannot be read into the said section as it existed prior to AY 1998-99 as it would amount to giving it retrospective effect. In other words, when the assessee created the reserve in assessment years prior to AY 1998-99 there was no obligation to maintain it. Nor did the free utilisation of the reserve attract any tax. That right which was vested with an assessee qua the special reserve created prior to AY 1998-99 cannot be curtailed or infringed upon by a subsequent amendment. It is well-settled that unless the terms of the statute expressly so provide or unless there is necessary implication, retrospective operation should not be given to the statute so as to affect, alter or ....
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....1 jurisdiction under section 263 was that the order sought to be revised must be erroneous insofar as it was prejudicial to the interests of the revenue. Where two views are inherently possible and the assessment could not be subjected to the jurisdiction under section 263. A similar view has been taken by the another Division Bench of this Court in CIT vs. Gabriel India Ltd. (supra) this view has been consistently followed. On the issue pertaining to applicability of the amended provision of reserve funds created prior to the amendment the Delhi High Court in CIT vs. I.F.C.I. (supra) has followed the analysis of the Kerala High Court in the matter of Kerala Finance Corporation Vs. CIT (2003) 261 ITR 708 (Ker). While interpreting the provisions of the amendment, the Kerala High Court held that the amendment was prospective and would be applicable only for the assessment year 1998-99 and therefore cannot be applied for the assessment years prior thereto. The said judgment has held that deduction that has been allowed in respect of amounts transferred to the special reserve under section 36(1)(viii) of the Act prior to amendment and which amounts were subsequently withdrawn ....
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....to be retrospective in nature. However, we are confronted with any such situation here. 34. In such cases, retrospectively is attached to benefit the persons in contradistinction to the provision imposing some burden or liability where the presumption attaches towards prospectivity. In the instant case, the proviso added to Section 113 of the Act is not beneficial to the assessee. On the contrary, it is a provision which is onerous to the assessee. Therefore, in a case like this, we have to proceed with the normal rule of presumption against retrospective operation. Thus, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication. Dogmatically framed, the rule is no more than a presumption, and thus could be displaced by out weighing factors. 35. Let us sharpen the discussion a little more. We may note that under cert....
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....p; In the absence of clear words indicating that the amending Act is declaratory, it would not be so construed when the preamended provision was clear and unambiguous. An amending Act may be purely clarificatory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature will have retrospective effect and, therefore, if the principal Act was existing law which the Constitution came into force, the amending Act also will be part of the existing law." The above summing up is factually based on the judgments of this Court as well as English decisions. A Constitution Bench of this Court in Keshavlal Jethalal Shah v. Mohanlal Bhagwandas & Anr.8, while considering the nature of amendment to Section 29(2) of the Bombay Rents, Hotel and Lodging&nbs....
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.... the Laws of England (3rd Edn.) and reiterated in several decisions of this Court as well as English courts is that all statutes other than those which are merely declaratory or which relate only to matters of procedure or of evidence are prima facie prospectively and retrospective operation should not be given to a statute so as to affect, alter or destroy an existing right or create a new liability or obligation unless that effect cannot be avoided without doing violence to the language of the enactment. If the enactment is expressed in language which is fairly capable of either interpretation, it ought to be construed as prospective only." 37. In the case of C.I.T., Bombay v. Scindia Steam Navigation Co. Ltd.11, this Court held that as the liability to pay tax is computed according to the law in force at the beginning of the assessment year, i.e., the first day of April, any change in law affecting tax liability after that date though made during the currency of the&nb....