TaxTMI 
TaxTMI 
2014 (11) TMI 1204
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....that the amounts invested in the Mutual Funds are the surplus amount available with the company during the year and not from the borrowed funds." 2.1 Facts of the case, in brief, are that during the course of assessment proceedings the AO noted that the assessee has claimed the dividend income as exempt. From the various details furnished by the assessee, he observed that the assessee company has used his cash credit account towards purchase of shares, the dividend income of which has been claimed as exempt. The AO however noted that the term loan of the company and the other interest bearing funds have not been used for purchase of income exempt assets. Applying the provisions of section 14A r.w. Rule 8D, the AO disallowed an amount of Rs. 11,173/- to the total income of the assessee. 3. In appeal the Ld.CIT(A) upheld the action of the AO on the ground that there is a specific finding by the AO that the cash credit funds has been diverted for purchase of shares, the income of which has been claimed as exempt. In view of the above, he distinguished the decision of the Hon'ble Bombay High Court in the case of CIT Reliance Utilities and Power Ltd., reported in 313 ITR 340 relied ....
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....generator set is around Rs. 30.50 crores at that time which was not possible for the assessee company to buy. Further, duration of procurement and commissioning of a new generator set was about 10 months, therefore, it was decided to purchase the second hand generator set from Kirloskar Oil Engines Ltd. It was further submitted that both the companies are in 30% tax bracket and the transaction was carried out at 'Arms Length'. 6. However, the AO was not satisfied with the explanation given by the assessee. According to him, the generators were 10 to 15 years old and originally the same was owned by Kirloskar Power Ltd., which was subsequently amalgamated with Kirloskar Oil Engines Ltd., which used to supply electricity from the generator supplied to the assessee company and other companies with the vicinity. The AO further held that since the main purpose of transfer of such generator set at higher than the WDV was to claim depreciation, provisions of section 43 r.w. Explanation 3 was clearly applicable. The AO accordingly substituted the value of Rs. 4,05,14,509/- being WDV in the books of account in Kirloskar Oil Engines Ltd. towards purchase of the same and accordingly disallo....
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....rator set at Rs. 4,05,14,509/-, thereby disallowing depreciation of Rs. 18,42,116/-. He submitted that the assessee, i.e. Kirloskar Ferrous Industries Ltd., and the seller Kirloskar Oil Engines Ltd. are listed public companies and are governed by SEBI Corporate Government norms. Both the companies have independent Board of Directors and the transactions are always at 'Arms Length Price'. He submitted that the assessee would have incurred a cost of Rs. 30.50 crores for installation of new generator set. Further, that would have hampered the production schedule since the purchase of new generator set would have taken considerable time which in turn would have affected the production schedule. However, both the companies are under 30% tax bracket. Therefore, merely because these are group companies there was no need of invoking the provisions of Explanation 3 to section 43(1). He drew the attention of the Bench to Explanation 3 to section 43(1) which reads as under : "Explanation 3.- Where, before the date of acquisition by the assessee, the assets were at any time used by any other person for the purposes of his business or profession and the Assessing] Officer is satisfied that t....
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....oduction schedule of the assessee company. The submission of the Ld. Counsel for the assessee before the lower authorities that both the companies are managed by separate Board of Directors has not been disputed. Since undisputedly both the companies which are listed public companies and are falling in the 30% tax bracket, therefore, the apprehension that such transfer was to reduce the tax liability is also not correct. Further, the AO has also not ascertained the market value of a 10 to 15 years old generator set of similar capacity purchased by the assessee from Kirloskar Oil Engines Ltd. Under these circumstances, we are of the considered opinion that the Ld.CIT(A) was not justified in upholding the action of the AO in invoking Explanation 3 to section 43(1). We accordingly set-aside the order of the Ld.CIT(A) on this issue and direct the AO to allow the depreciation as claimed by the assessee. ITA No.1059/PN/2013 (By Revenue) : 10. Grounds of appeal No.1 and 2 by the Revenue reads as under : "1. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in holding that commission paid of Rs. 22 lacs to Non-Executive Director is an ....
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....he contrary, the appellant has submitted that the payment to Non-Executive Directors was calculated as per Sec. 309 of the Companies Act. It was also submitted that the learned Assessing Officer failed to appreciate the fact in proper prospective and similar claims in the hand of company were never disallowed in the past. In this regard, it must be appreciated that Non-Executive Directors are the Members of Board of Directors and they enjoy powers as delegated to them by the Board of Directors or vested in them by Articles of Association of the company. Further, the commission is approved by the Board of Directors as per Companies Act. In this case, as per Annual Report, commission to these Directors was allowable up to Rs. 64,74,648/- and against this, the claim was restricted to Rs. 22 lacs only. Further, I also find sufficient merit in the claim of appellant that no such disallowance was made in the past. Accordingly, from the facts and circumstances of the case, it is held that the Assessing Officer was not justified in disallowing the commission of Rs. 22 lacs to NonExecutive Directors. Accordingly, he is directed to delete the addition of Rs. 22 lacs. The ground is thus allow....
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.... and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. The submission of the Ld. Counsel for the assessee that it is mandatory for listed public companies to have specified number of independent non-executive directors could not be controverted by the Ld. Departmental Representative. Therefore, the decision of the Hyderabad Bench of the Tribunal in the case of Orient Longman Pvt. Ltd., (Supra) is not applicable to the facts of the present case. The audited accounts of the assessee company show the meetings attended by the nonexecutive directors in the Board meeting as well as meetings of the Audit committee. Further, similar payments made in the past have not been disallowed. The payment of commission has also been approved by the Board of Directors and within the permissible limit of the Companies Act. In view of the above, we find no infirmity in the order of the Ld.CIT(A) deleting the disallowance of Rs. 22 Lakhs being commission paid to non-executive directors. Accordingly, the same is upheld and the grounds raised by the Revenue are dismissed. 15. Grounds of appeal No.3 and 4 by the Revenue reads as under : "3. ....
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....the Hon'ble High Court while deciding the issue has observed as under : "30. The last question which arises for consideration is that whether the unabsorbed depreciation pertaining to A.Y. 1997-98 could be allowed to be carried forward and set off after a period of eight years or it would be governed by Section 32 as amended by Finance Act 2001? The reason given by the Assessing Officer under section 147 is that Section 32(2) of the Act was amended by Finance Act No.2 of 1996 w.e.f. A.Y. 1997-98 and the unabsorbed depreciation for the A.Y. 1997-98 could be carried forward up to the maximum period of 8 years from the year in which it was first computed. According to the Assessing Officer, 8 years expired in the A.Y. 2005-06 and only till then, the assessee was eligible to claim unabsorbed depreciation of A.Y. 1997-98 for being carried forward and set off against the income for the A.Y. 2005-06. But the assessee was not entitled for unabsorbed depreciation of Rs. 43,60,22,158/- for A.Y. 1997-98, which was not eligible for being carried forward and set off against the income for the A.Y. 2006-07. 31. Prior to the Finance Act No.2 of 1996 the unabsorbed depreciation for any year ....
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....ll be carried forward to the following assessment year not being more than eight assessment years immediately succeeding the assessment year for which the aforesaid allowance was first computed: Provided that the time limit of eight assessment years specified in sub clause (b) shall not apply in case of a company for the assessment year beginning with the assessment year relevant to the previous year in which the said company has become a sick industrial company under sub-section (1) of section 17 of the Sick Industrial Company (Special Provisions) Act, 1985 (1 of 1986) and ending with the assessment year relevant to the previous year in which the entire net worth of such company becomes equal to or exceeds the accumulated losses. Explanation.- For the purposes of this clause, "net worth" shall have the meaning assigned to it in clause (ga) of sub-section (1) of section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985." 34. The aforesaid provision was introduced by Finance (No.2) Act, 1996 and further amended by the Finance Act, 2000. The provision introduced by Finance (No.2) Act was clarified by the Finance Minister to be applicable with prospective effe....
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....he intent of the amendment that it is for enabling the industry to conserve sufficient funds to replace plant and machinery and accordingly the amendment dispenses with the restriction of 8 years for carry forward and set off of unabsorbed depreciation. The amendment is applicable from assessment year 2002-03 and subsequent years. This means that any unabsorbed depreciation available to an assessee on 1st day of April, 2002 (A.Y. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001 and not by the provisions of section 32(2) as it stood before the said amendment. Had the intention of the Legislature been to allow the unabsorbed depreciation allowance worked out in A.Y. 1997-98 only for eight subsequent assessment years even after the amendment of section 32(2) by Finance Act, 2001 it would have incorporated a provision to that effect. However, it does not contain any such provision. Hence keeping in view the purpose of amendment of section 32(2) of the Act, a purposive and harmonious interpretation has to be taken. While construing taxing statutes, rule of strict interpretation has to be applied, giving fair and reasonable co....