TaxTMI 
TaxTMI 
TaxTMI 
2019 (7) TMI 949
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....f Rs. 9,02,198/- u/s.14A of the Income Tax Act, 1961 (hereinafter referred to as "the Act")". The exempt income earned was Rs. 1,80,43,953/- out of which Rs. 2,10,000/- was from Tax Free Bonds and remaining from Dividend from "Trade and Non-Trade Investments". The Assessing Officer disallowed the amount of Rs. 14,39,550/- being the expenditure incurred by way of interest expense and administrative expense for earning the exempt income. The detail of disallowance made by the Assessing Officer is as follows: "Particulars Amount Rs. Interest expenses attributable to exempt Dividend income 3,09,448/- Interest expense attributable to exempt interest Income 2,27,904/- Administrative expenses attributable to exempt Income ( 5% of Rs. 18,043,953) 9,02,198/- Total 14,39,550/-" 4. Thereafter, the matter travelled before the Ld. CIT(Appeals) and therein the assessee submitted that investments were made by the assessee out of its own funds (interest free funds) and demonstrated through books of account that the own funds were far in excess of investments made during the year. Therefore, no disallowance for interest income can be made under the provisions of section 14A of the ....
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....ed before the Bench that considering the totality of facts and circumstances, some petty addition may be made on this count. 6. Per contra, the Ld. DR placed strong reliance on the orders of the Sub-ordinate Authorities. 7. We have perused the case records and heard the rival contentions. We have also given thoughtful consideration to the judicial pronouncements placed before us. With regard to the disallowance made u/s.14A of the Act, it is quite ascertainable and acceptable facts on record as placed before us at Page 19, Volume-1 of the paper book that the assessee had own funds far in excess of investment made during the year. The assessee had reserve and surplus of Rs. 115.27 Crores as on 31.03.2002 and profit before tax during the current year of Rs. 15.26 Crores. The Hon"ble Bombay High Court in the case of CIT Vs. Reliance Utilities and Power Ltd.(supra.) analysed the situation that when it is established that the assessee is having sufficient funds then presumption would arise that investments was made out of such funds available with the company. In that case, the assessee had interest free funds of Rs. 398.19 crores comprising share capital, reserve & surplus, depreciat....
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....very outset accepted the contention of the assessee that during the current year, amount of provision for warranty is Rs. 95,15,024/- as against the figure of Rs. 1,03,01,499/- appearing in the special audit report. The Assessing Officer found that the provision made by the assessee has been much excessive to the actual expenditure on this count. The Assessing Officer further observed that the assessee has incurred expenses to Rs. 67,65,915/- during the year towards warranty in Pune Division, the funds for which had been very much available from opening balance of Rs. 1,89,94,994/-. In other words, there has been no need for the assessee to make further provisions during the current year. In addition to this, the assessee has also received Rs. 27,95,163/- from vendors towards warranty expenses which has to be considered as the income of the assessee of the current year. As regards the Chicago Pneumatic Division, the assessee had an opening balance of Rs. 49,35,909/- and made further provision of Rs. 3,10,33,820/- during the year. As against this, the assessee has incurred expenses of Rs. 3,11,63,197/- and there has been an excess provisioning of Rs. 48,06,532/- during the current y....
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.... AR stated that the assessee recovered claims from some parties. This amount is directed to be credited to Provision for warranty, thereby reducing the amount of expenses incurred during the year. There is another sum of Rs. 55,03,000/-, which is `Reversal during the year". As the assessee is getting deduction on creation of provision, such reversal, being excessive provision created in the past, needs to be recognized as income for the year. In so far as CP division is concerned, the assessee made provision during the year at Rs. 3,10,33,820/-. As against that, the amount of actual expenditure is Rs. 3,11,63,197/-. In view of the fact that actual expenditure incurred by the assessee in CP division is more than the amount of provision, we hold that deduction should be allowed for the amount of provision created. In the absence of such a position, we would have directed to follow the same rule of allowing provision at the rate of 0.40% of the sales of CP division. Once deduction is allowed on creation of provision, there can be no question of allowing deduction for actual expenses incurred in this division. The AO is directed to give effect to our above directions/observations af....
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....head "profit and gains of business or profession. Therefore, the deduction is correctly claimed at 1/5th of the amount of expenditure incurred on VRS, in accordance with section 35DDA read with section 43(2) of the Act. The Ld. AR further referred to the decision of the Hon"ble Madras High Court in the case of Pereira and Roche Vs. CIT, 61 ITR 371 (1966) wherein it has been held that "the term "actually paid" is not to be understood in a physical sense but in the sense that the expenditure is actually incurred." The Hon"ble Bombay High Court in the case of CIT Vs. Tata Hydro Electric Supply Co. Ltd. (1995) 219 ITR 178 has held that "the meaning of the word "paid" as used in section 36(1)(iv) of the Act has to be construed in the sense set out in clause (2) of section 43 of the Act." 15. Per contra, the Ld. DR has placed strong reliance on the orders of the Sub-ordinate Authorities. 16. We have perused the case records and heard the rival contention. We observe that Section 35DDA of the Act does not make any reference to sums actually paid. It refers expenditure that expenditure can be actually incurred or paid. The spirit of interpretation with any scheme of Act provides that the....
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....mation. 18. The Ld. CIT(Appeals) on this issue observed that the same matter has been decided in assesse"s own case for assessment year 2004-05 and 2005-06 in the proceedings before his predecessor and even the quantum of claim i.e. Rs. 49,60,536/- is the same as was in those years. In those appellate orders, it was held that stamp duty expenses on immovable property amounting to Rs. 2,37,52,680/- was eligible for amortization under section 35DD of the Act while fees for increase in authorized share capital i.e. Rs. 10,50,00/- was not eligible for amortization in view of the decision of the Hon"ble Delhi High Court in the case of CIT Vs. Hindustan Insecticides Ltd. 250 ITR 338. Therefore, the Ld. CIT(Appeals) herein allowed the stamp duty expenses as eligible for amortization under section 35DD of the Act but fees for increase in authorized share capital was found as not eligible in view of the decision of the Hon"ble Delhi High Court (supra.). 19. Ground No.3 of Revenue"s appeal is against the partial relief provided by the Ld. CIT(Appeals) in favour of the assessee on this issue. 20. At the time of hearing, the Ld. AR of the assessee vehemently argued that the case law relied ....
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.... delete the addition from the hands of the assessee. Thus, ground No.4 raised in appeal by the assessee is allowed and ground No.3 of the Revenue"s appeal is dismissed. 24. Ground No.5 relates to "disallowance of provision on stock obsolescence". It is observed by the Revenue Authority that the assessee made mere provisions for obsolescence but all of the corresponding items were not actually written off from the closing stock but still the deduction was claimed for the provision for stock obsolescence. The facts on record demonstrates that the comparative figures given in assessment year 2001-02 against the provision made of Rs. 2,17,38,129/-, the actual write off of obsolete stock was worth Rs. 1,22,83,015/- only. Similarly in the relevant year, the assessee claimed a deduction of Rs. 5,77,48,543/- on the basis of provision for obsolescence of the inventory whereas the actual write off of stock was made to the extent of Rs. 3,70,21,550/- only. Similarly in assessment year 2003-04, the Assessing Officer pointed out that the provisioning of account was made every year whereas the actual write off is of a much smaller amount. Further, no documentary evidences were furnished regardi....
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....ssee cannot be faulted inasmuch as it is well established theory that the closing stock is liable to be valued at cost or market price whichever is lower. The principle applicable with regard to obsolete stock is akin to the aforesaid theory and the assessee made no mistake in adopting such a policy to make a provision for the obsolete stock. In the present case, in our view, the Commissioner of Incometax (Appeals) made no mistake in deleting the addition. In fact, the learned Counsel for the assessee had pointed out that a similar dispute had arisen in the assessee"s own case for the assessment years 1973-74 to 1975-76 and the Tribunal had upheld the stand of the assessee and for that matter a reference was made to the decision of the Tribunal, Bombay Bench in the case of IAC v. Consolidated Pneumatic Tool Co. (I) Ltd. 15 ITD 564 (Bom). It is further pointed out that such policy of identifying and making a provision for diminution of value of obsolete stock was accepted by the department in the past and no disallowance was made till the instant assessment year. In this background of the matter also, we find that the Commissioner of Income-tax (Appeals) has rightly deleted the addi....
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.... Respectfully, following the decision of the Hon"ble Jurisdictional High Court, we direct the Assessing Officer to provide provision for stock obsolescence to the assessee and delete the addition therein. Thus, ground No.5 raised in appeal by the assesse is allowed. 27. The Revenue in its appeal in ground No.5 has challenged the part relief given to the assessee on the stock actually written off. We have decided this issue in assessee"s appeal allowing stock obsolescence to the assessee. Therefore, ground No.5 of the Revenue"s appeal is dismissed. 28. Ground No.6 pertains to "confirming the addition of Rs. 3,40,443/- being income from scrap sale which according to the assessee was the amount already offered to tax in assessment year 2001-02 i.e. preceding assessment year". 29. The facts on this issue are that in the Special Audit Report (SAR), the assessee has debited Rs. 3,40,443/- to sale of scrap account giving effect to the sale of car and this has resulted in reducing the income from sale of scrap by the said amount. The assessee by way of its explanation vide letter dated 05.05.2005 has stated that this has only been a rectification entry passed in its books brought in fr....
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.... whereas the actual expenses incurred was Rs. 9,59,431/-. Accordingly based on the special audit report, the excess provision made at Rs. 5,16,957/- was disallowed by the Assessing Officer. 33. Before the Ld. CIT(Appeals), the submission of the assessee was that the assessee has made monthly provision of Rs. 1,20,000/- for share handling charges account which was paid to the registrar of the company in relation to the expenses incurred relating to the company matters during financial year 2001-02 i.e. assessment year 2002-03. Out of the total provision of Rs. 1,476,398/- in the share handling account, the assessee has actual incurred expenses amounting to Rs. 959,431/- in relation to the share handling charges. Out of balance provision of Rs. 516,954/-, the sum of Rs. 501,463/- has been actually incurred out in subsequent financial year 2002-03 i.e. assessment year 2003-04. It is the plea of the assessee that this provision goes on for every year and adequate provisions are made in the books of account. The assessee placed reliance on the decision of the Hon"ble Bombay High Court in the case of CIT Vs. Mahindra Ugine and Steel Co. Ltd., 250 ITR 84 wherein it has been held that "th....
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....ctual import and what is the nature of this amount of Rs. 16,44,087/-. The assesee could not give the breakup and the details with supporting evidences as to why this write off of unreconciled amount was allowable as deduction. The Ld. CIT(Appeals) upheld the findings of the Assessing Officer stating that no working along with supporting evidences has been placed on record by the assessee regarding this amount and justification for claiming it as deduction has not been explained. The Ld. AR of the assessee at the time of hearing prayed that this issue may be restored to the file of the Assessing Officer where they would provide necessary evidences and working and would present their case on merits. 38. We have perused the case records and analyzed the facts and circumstances in this case. On this issue, the Revenue Authorities have made addition since the assessee was unable to explain the modus of working of such provision in its books of account and was also not able to justify with supporting evidences that why this amount should be allowed as deduction. However, prayer of the Ld. AR is that they are ready with entire working of the said amount and relevant supporting document....
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....ication are being restored to the file of Assessing Officer and this issue also qualifies in that category. In view of the matter, we set aside the order of the Ld. CIT(Appeals) on this issue and restore the issue to the file of the Assessing Officer for adjudication after following the principles of natural justice. Thus, ground No.9 raised in appeal by the assessee is allowed for statistical purposes. 42. Ground No.10 is with regard to the "disallowance of excess provisions of Rs. 8,25,000/-". The Assessing Officer relying on the observation of SAR has disallowed the provision for expenses of Rs. 8,25,000/-considering the same as excessive provision against which no expenditure were actually incurred by the assessee during the year. The Special Auditor had pointed out that the assessee was making ad-hoc provision every month end in CP division of the company, the entire such provisions were added to the brought forward opening balance of the provisions and carried forward to the next year. Thus, no expenditure was actually incurred out of these provisions during the year. 43. The assessee filed detailed written submissions before the Ld. CIT(Appeals). The Ld. CIT(Appeals) on th....
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.... 44. We have perused the case records and given thoughtful consideration to the findings of the First Appellate Authority. There is a clear cut verification on facts which is on record that the assessee has given no basis whatsoever for making such ad-hoc provisions and actually there were no expenses incurred at all from this provisions during the year. Therefore, we do not find any infirmity with the findings of the Ld. CIT(Appeals) and the same is thereby upheld. Thus, ground No.10 raised in appeal by the assessee is dismissed. 45. Ground No.11 is with regard to the "disallowance of bad debts written off Rs. 74,24,121/-". The Assessing Officer disallowed the entire bad debts claimed by the assessee as per the findings recorded in his order. 46. The Ld. CIT(Appeals) on this issue has observed and held as follows: "69. Now the discussion made above regarding the AO"s reasoning for the disallowance of Bad debt in the two divisions in which the bad debts were claimed reveal that this condition given u/s 36(2)(i) is not satisfied for a part of the claim made under Bad debt written off. The AO's finding is based on the Special Audit Report, according to which in the Atlas Copc....
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....)(i) of the Act is not been satisfied. In the SAR regarding Atlas Copco division out of the total claim of Rs. 74,56,049/- for the amount of Rs. 9,86,019/- the details regarding the nature of the debt and whether it was included as income in any of the earlier period could not be provided. Moreover, for the CP division, where total claim was Rs. 64,38,102/-, the Assessing Officer has pointed out to a double claim to the extent of Rs. 2,46,600/-; and in respect of the remaining amount, no details, breakup, etc. could be given to show that these debts were offered to tax as income in the earlier years. Thus, the Assessing Officer noted that condition u/s.36(2) was not satisfied for the bad debt claimed of CP division. The Ld. CIT(Appeals) has observed that for the amount of Rs. 64,70,030/- claimed as bad debt in the Atlas Copco Pune Division, for which details regarding the same having been included as sales in the earlier period was given that was considered to have satisfied the condition given u/s 36(2)(i) of the Act. For the remaining amount of Rs. 9,86,019/- of the ACP division and the entire amount of Rs. 64,38,102/- of the CP division, the assessee cannot be considered to have....
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....01, the Tribunal in its order dated 19.11.2010 (supra) has considered the allowability of the write-off of advance given to M/s Vitara Chemicals Ltd. in the following words: "We have considered the rival submissions. We have seen the Memorandum of Association of the assessee and in clause 17 of the other objects clause permits the assessee to engage in the business of lending money of the company not immediately required. It is further seen that the assessee has been systematically and periodically making ICDs. At page 201 of the assessee's paper book we find that assessee has during the period from April, 1999 to October 1999 made Inter Corporate Deposits totaling Rs. 4,08,23,117/-. The ICDs were made in about 15 companies. The interest earned on ICDs has been regularly offered to tax as business income. In this regard we have seen he assessment orders in assessee's case for AY 1999-2000 and 1998-99, wherein the interest income has been offered as business income and tax accordingly. In view of the above, we are of the view that the findings of the CIT(A) that assessee was engaged in the business of making ICDs has to be upheld. It is further seen that the company M/s Vi....
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.... were offered to tax. The respondent assessee had advanced as inter corporate deposit an amount of Rs. 50 lakhs to one Vitara Chemicals Ltd. during the assessment year 1999-2000. The interest received on the inter corporate deposits from Vitara Chemicals Ltd. were offered to tax in the assessment years 1999-2000 as business income and accepted by the Revenue. In the current assessment year the said Vitara Chemicals Ltd. became a sick company and the balance amount of Rs. 48 lakhs was not recoverable in spite of proceedings under section 138 of the Negotiable Instruments Act. Thus, the respondent assessee wrote off the amount as bad debts. The Assessing Officer did not allow the deduction as it had nothing to do with the respondent assessee"s business." The Hon"ble Jurisdictional High Court on this issue has held as follows: "(iii) In appeal, the CIT(A) deleted the disallowance of Rs. 48 lakhs and held it to be business loss. The Tribunal in an appeal by the revenue, upheld the order of CIT(A). The case of the revenue that the loss had nothing to do with the business of the assessee and therefore, could not be allowed as business loss was negatived by the Tribunal with a finding ....
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....ws: "The submissions made vide our letter dated May, 05, 2005 are reproduced below: The Company had imported from a party certain products, which were later found to be defective and hence the company had said them as scrap for Rs. 2,010,925/-. Initially, it was understood that the company will get the replacement for these parts and the money received from scrap sale would be returned to the party. Accordingly, the amount received as scrap sale was not accounted as income but shown as liability. Later, the party did not give replacement for these parts as mutually agreed. As a result, the amount shown as payable to the party 'was transferred to miscellaneous income in AY 2003-04 and was correctly offered for tax, however this will not have any impact on the overall taxability. In view of the above submissions we would also like to add that the amount was payable to the party as of March, 31, 2002 and in the subsequent year as the party has not given any replacement for the faulty material the said amount was transferred to miscellaneous income and offered to tax. As at March, 31, 2002 since this was certain liability and hence the question of deferring the income to next....
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....e perused the case records and considered the judicial pronouncements placed before us. We appreciate that this issue has been restored to the file of the Ld. CIT(Appeals) in assessee"s own case. However, in the present scenario where most of the issues, we have restored to the file of Assessing Officer for verification, this issue, therefore is restored to the file of Assessing Officer for re-examination and adjudicating the matter after providing reasonable opportunity of hearing to the assessee. Thus, we set aside the order of the Ld. CIT(Appeals) on the issue and allow the ground No.14 of the assessee"s appeal for statistical purposes. 59. With regard to ground No.15, the Ld. AR of the assessee submitted that they are not pressing this ground. In view of the submission of the Ld. AR, ground No.15 raised in appeal by the assessee is dismissed as "not pressed". ITA No.1414/PUN/2011 ( By Revenue) A.Y.2002-03 60. At the very outset, it is mentioned that grounds No.1, 2, 3 and 5 of the Revenue"s appeal have been decided while adjudicating the similar grounds raised in assessee"s appeal. Now we take up the new grounds raised in appeal by the Revenue. 61. Ground No.4 of Revenue"s....
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....action, the assessee went in appeal before the Commissioner of Income-tax (Appeals) and filed detailed submissions to substantiate it claim of having incurred expenditure by way of commission. 20. The Commissioner of Income-tax (Appeals) considered the elaborate and exhaustive submissions made by the assessee before him and deleted the impugned addition made by the Assessing Officer. The relevant findings of the Commissioner of Income-tax (Appeals) are extracted hereinbelow: "7. I have carefully considered the reasons cited by the AO in the assessment order for making the said disallowance and also to the appellant's submissions. In my view, the appellants have been able to substantiate their claim of commission payment. The appellants had submitted detailed justification for the payments. A majority of the payees selected randomly by the AO had confirmed the receipt of commission payment. The AO has not raised any serious questions regarding the veracity of the information received from these parties. Significantly, in no case payment was denied by any party (in some cases there was no response). The AO also acknowledges that the payments had been made through cheques. T....
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....asion to deal with similar disallowances out of commission expenses and the same has been allowed in favour of the assessee. It is further pointed out that the practice of giving commission to the dealers/agents in consideration of services rendered by them has been duly recognized by the department in the past and in this year also, the expenditure has been incurred on similar lines. Therefore, according to him, the Commissioner of Income-tax (Appeals) made no mistake in deleting the impugned disallowance." 63. The Co-ordinate Bench of the Tribunal, Pune on this issue has held as follows: "23. We have carefully considered the rival submissions. We have also perused the orders of the authorities below as well as the assessee's written submissions and other material placed on record, which has been referred to in the course of the hearing before us. Briefly put, as per the material on record, it emerges that the assessee company has customers spread all over India and in order to serve such customers at various locations, assessee appoints dealers for its various products, namely, compressors, construction and mining equipment, spares and accessories. It has been explained th....
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....is situation, the dealer responsibility for such Government customer is to provide logistics and communication support for follow up and securing the orders from the various Departments, etc. We do not find any material adverse to the aforesaid explanation of the assessee. Even otherwise, it has been pointed out that commission payment to dealers with respect to the orders from a Government agency was a subject matter of consideration by the Tribunal in the assessee's own case for assessment year 1985-86 vide ITA No 114/M/03 dated 25.7.2007. In this precedent, the Tribunal has allowed the deduction after being satisfied of the practice of commission payment. In this background of the matter, and with no adverse material on record, we do not find any merit in the objections raised by the Assessing Officer with regard to commission payment to dealers relating to the orders from the Government agencies. At this point, we may also observe that even with regard to the verification exercise carried out by the Assessing Officer, we find nothing adverse so as to infer that the impugned commission payments were ingenuine. The Assessing Officer issued summons to 17 randomly selected part....
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....efore the Tribunal nor before us, the revenue made any attempt to distinguish the orders of the Tribunal for the earlier years from the facts as appearing in the present assessment year. This signifies that the issue has attained finality as on date. Respectfully following the aforesaid ruling in this relevant year also, we sustain the relief provided to the assessee by the Ld. CIT(Appeals). Hence, ground No.4 of Revenue"s appeal is dismissed. 65. Ground No.6 of Revenue"s appeal is with regard to "the deletion of disallowance of prior period royalty amounting to Rs. 95,77,308/-, on account of non deduction of TDS on Rs. 74,59,035/- and the balance of Rs. 21,18,113/- being prior period expenses." 66. In respect of the disallowance u/s.40(a)(i) of the Act, it was observed by the Assessing Officer that no evidence had been produced by the assessee that it had debited the tax at source and paid the tax before the expiry of the time prescribed u/s.200(1) of the Act. This was on the basis of the Special Audit report in which it was observed that no TDS had been made or paid during the previous year in respect of royalty provision of Rs. 95,77,308/- as on 31.03.2002. The Assessing Offi....
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....Rs. 9,31,789/-, only Rs. 3,02,040/- worth TDS has been deducted and paid during the F.Y. relevant to A.Y.2002-03. Accordingly, only the corresponding amount of Rs. 30,20,400/- was liable to be allowed as deduction in this year, whereas the royalty provision amounting to Rs. 62,97,481/ - on which the TDS of Rs. 6,29,749/- has been paid during the next F.Y. i.e. A.Y. 2003-04, the same cannot be allowed as a deduction in this year. Therefore, instead of the disallowance amounting to Rs. 95,77,308/-, the disallowance of Rs. 62,97,749/- was sustained by the Ld CIT(Appeals) and the balance amount was deleted. We do not find any infirmity with this finding of the Ld. CIT(Appeals) on the issue and the same is thereby upheld. Thus, ground No.6 of the Revenue"s appeal is dismissed. 69. Ground No.7 of Revenue"s appeal is with regard to "deleting the addition on account of adjustment of Arm"s Length Price on allowable royalty payment amounting to Rs. 80,44,106/-". 70. The facts on this issue are that the Transfer Pricing Officer (TPO) in his order passed u/s.92CA(3) of the Act dated 20th May, 2005 had made adjustment to the tune of Rs. 80,44,106/- on account of the arm"s length price of the ....
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....ellant had failed to substantiate its claim before him that the AEs who had supplied the technology had stopped manufacturing products by utilizing the said technology. Before me, the learned AR of the appellant briefly explained the manner in which the technology is obtained by the appellant for utilization in production. It is stated that various new designs are available on the company"s worldwide internet and any entity belonging to the group and having access to the secure internet, is entitled to download the same and utilize it for production subject to payment of royalty at the rate prescribed through a license agreement. The appellant decides the sale price of its products keeping in view all its costs, including the amount of royalty payable. Under the circumstances, there is no good reason, according to the learned AR of the appellant for royalty payment to be influenced by the fact of some part of sales being made to the same AEs to whom royalty is paid, as the two transactions are separate from each other. Having considered the facts on record, the order of the TPO and the submissions of the appellant, I am inclined to agree with the appellant on this count also. Whe....