TaxTMI 
TaxTMI 
2017 (9) TMI 1832
X X X X Extracts X X X X
X X X X Extracts X X X X
....0 Disallowance of Expenses u/s 14A - Rs. 25,000/- The learned CIT (A) erred on facts and in law in disallowing Rs. 25,000 out of the dividend income u/s 14A. -He failed to appreciate that the assessee company did not incur any expenditure attributable for earning dividend. 2.0 Disallowance out of Aircraft Expenses - Rs. 3,01,008/- The learned CIT (A) erred in holding that the aircraft were used for non business purposes when it was averred before him that the aircraft are jointly owned with other companies and there is o element of personal use at all. The details of flights (Logbook) were submitted at the time of assessment. 3.0 Prior period expenses - Rs. 42,70,888/- The learned CIT (A) erred on facts and in law in not allowing deduction of Rs. 42,70,888/- on account of expenses related to earlier year rightfully claimed by the assessee. He failed to appreciate that the liability for these expenses crystallized during the year. Alternately, he should have allowed the expenses in respective years. 4.0 Bad debts and irrecoverable balances written off - Rs. 93,66,115/- i) Aviation debtors written off - Rs. 19,02,884/- The learned CIT (A) erred on facts ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arding use of telephones by employees. 9.0 Repairs expenditure treated as capital expenditure - Rs. 44,27,538/- The learned CIT (A) erred on facts and in law in disallowing expenditure in nature of repairs and maintenance as capital expenditure. He failed to appreciate that neither new asset was acquired nor there was any enduring benefit. The expenditure for renovation and interior decoration of the existing office premises constitute repairs and maintenance expenditure and is allowable as deductible revenue expenditure u/s 30 and 31 of the Income tax Act, 1961. 10.0 Loss on forward contract cancellation loss - Rs. 46,583/- The learned CIT (A) erred on facts and in law in disallowing loss incurred on cancellation of forward contract relating to foreign exchange liability as a speculation loss. He failed to appreciate the common practice prevalent in the business. The learned CIT (A) also misdirected himself and failed to properly appreciate the issue. 11.0 Disallowance out of advertisement and publicity - Rs. 29,77,787/- The learned CIT (A) erred on facts and in law in remitting back for AO‟s verification the entire expenditure on product advertisement and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rlier years. The liability of Rs. 2.12 crs has clearly crystallized during the year and is an expense for the year. he ought to have followed the decision of the apex court in Bharat Earth Movers case (245 ITR 428). 16.0 Profit u/s 115JB: The learned CIT (A) erred on facts and in law in computing profit u/s 115JB. He failed to appreciate that as per the scheme of amalgamation of the company with Shivaji Works Ltd. (SEL) sanctioned by the BIFR, the company is not liable to pay minimum alternates tax till all the carriedforward unabsorbed losses of SWL are fully absorbed. He failed to appreciate that the order of the BIFR is "directory" and is not a mere recommendation and as per CBDT notification it is binding on him. He further failed to appreciate that under section 32(1) of the SICA, orders passed by the BIFR have overriding effect over the Income Tax Act. He failed to appreciate the arguments advanced by the assessee. The learned CIT further failed to appreciate that the matter is no longer within the purview of CBDT. He also failed to appreciate the correct interpretation of and intentions behind the CBDT‟s order dated 16-2-2000 u/s 119(2)(a). Without prejudic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....diture had got crystallized during the year. The Assessing Officer held that in the absence of any documentary proof or any cogent evidence, none of the liabilities could be said to have got crystallized during the year ending 31.03.2001. The assessee had claimed TDS of Rs. 9 lakhs and Sales Tax of Rs. 1,41,890/- which was held to be not allowable deduction. The Assessing Officer was of the view that where the assessee was following mercantile system of accounting, all these expenses should have been debited in the respective years. 9. The CIT(A) allowed prior period expenses of Rs. 23,03,270/-. In respect of remaining prior period expenses which included TDS of Rs. 9 lakhs, Sales Tax of Rs. 1,41,890/- and Octroi of Rs. 4,010/- and other expenses, the CIT(A) upheld the disallowance at Rs. 42,70,880/-. 10. The assessee is in appeal against the said order of CIT(A). 11. The learned Authorized Representative for the assessee drew our attention to page 100 of the Paper Book at which the details of prior period expenses are provided. The learned Authorized Representative for the assessee pointed out that the total prior period expenses worked out to Rs. 12,76,98,372/-, out o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is bad debits written off of Rs. 19,02,884/- and the second is debit balances written off of Rs. 93,66,115/-. In respect of first subissue, the assessee had written off sum of Rs. 19,02,884/- which was due from Mysore Kirloskar Ltd. (MKL) sick company, which was referred to BIFR. The assessee had raised debit notes on the said concern for recovery of common aviation pool expenses and since the same were not recovered, it was written off as the said income was offered to tax in earlier years. The Assessing Officer had disallowed the claim of assessee. The CIT(A) however, restores this issue back to the file of Assessing Officer to verify whether the amount has been written off. 15. The learned Authorized Representative for the assessee fairly pointed out that the issue has been restored back to the file of Assessing Officer but the Assessing Officer till date has not allowed the appeal effect. We direct the Assessing Officer to allow the claim of assessee in case the said amount has been written off; then the assessee is entitled to claim the deduction under section 36(1)(vii) of the Act. 16. Now, coming to the second part of the said expenditure i.e. debit balances writte....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... be allowed. In view of the contention of assessee, where the claim is written off, we allow the deduction on account of Rs. 30 lakhs and the balance disallowance is confirmed in the hands of assessee. The ground of appeal No.4 is thus, partly allowed. 22. The next issue raised by way of ground of appeal No.5 is the disallowance out of club expenses of Rs. 1 lakh. 23. The authorities below had treated the entrance fees paid to the PYC Hindu Gymkhana as capital expenditure. 24. The learned Authorized Representative for the assessee in this regard pointed out that the said issue is covered in favour of assessee by the decision of Hon'ble High Court of Gujarat in Gujarat State Export Corporation Ltd. Vs. CIT (1994) 209 ITR 649 (Guj). 25. We find that the issue is squarely covered by the ratio laid down by the Hon'ble High Court of Gujarat, wherein entrance fees to the Gujarat Government Club was allowed as deduction in the said case. Following the same parity of reasoning, we hold that the payment of entrance fees for becoming the member of club, cannot be termed as capital expenditure and is to be allowed as revenue expenditure in the hands of assessee. The ground of ap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s not recurring expenditure in the nature of normal repairs and maintenance. 30. The CIT(A) upheld the order of Assessing Officer, against which the assessee is in appeal. 31. The perusal of details which are reproduced at page 14 of the assessment order reflects renovation and interior decoration of various portions being carried out by the assessee including providing of furniture work in board room, video conference room, visitors room, etc. The assessee also provided automatic gates and security cabins. The nature of expenditure incurred by the assessee reflects the same to be in the nature of repairs and maintenance and merits to be allowed in the hands of assessee. The expenditure incurred on security cabins and also cabin for computer gate pass system are temporary in nature and are also to be allowed as revenue in nature. Accordingly, we direct the Assessing Officer to delete the addition of Rs. 44,27,537/-. The ground of appeal No.9 is thus, allowed. 32. The issue in ground of appeal No.10 raised by the assessee is against non-allowance of loss on forward contract cancellation of Rs. 46,583/-. The assessee had debited net foreign exchange loss of Rs. 1,25,73,787/- wh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es and he upheld the disallowance @ 5% made by the Assessing Officer. However, in respect of licence expenses, the CIT(A) held that the same are to be allowed in entirety. The assessee before us has pointed out that the CIT(A) has erred in remitting the issue back to the file of Assessing Officer for verification of entire expenditure on product advertisement and sales promotion when he himself convinced with the major portion of expenditure was revenue in nature. Further, the assessee is also in appeal against 5% disallowance made out of guest expenses, presentation of articles and general expenses being not wholly and exclusively were incurred for the purpose of business. The learned Authorized Representative for the assessee is aggrieved by the said order of CIT(A); in the first instance, for no appeal effect be allowed till now and also against the disallowance made @ 5%. 37. First of all, we direct the Assessing Officer to verify the nature of expenses debited under the head product advertisement and publicity expenses and in case the said expenditure has been incurred for the purpose of business, then the same is to be allowed as business expenditure. The balance if any, wh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....from M/s. Oil India Ltd., wherein the actual liquidated damages were of the order of Rs. 1,49,97,482/-, held the same as admissible and the disallowance to that extent was deleted. The remaining amount of Rs. 6,64,552/- represented interest on mobilization advance. The CIT(A) noted that as per purchase order, mobilization advanced was interest free and it had to be seen as to why M/s Oil India Ltd. demanded interest on the said mobilization advance. In the absence of complete details being filed by the assessee, the matter was restored to the file of Assessing Officer to call for relevant particulars and decide the same. 41. In respect of balance liquidated damages, the assessee filed evidences in respect of certain items and the CIT(A) held that in view of the evidences filed for Rs. 3,41,724/-, Rs. 5,44,987/-, 1,45,072/- and Rs. 5,25,067/-, allowability towards the payment of liquidated damages had arisen during the relevant previous year and the same was held to be allowable. In respect of last item i.e. of Rs. 20,82,140/-, the assessee had only made the provision, even before any demand was raised by the concerned party. Since it was not known as to whether the demands were a....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... CIT (supra), which was relied on by the Assessing Officer. 45. We have heard the rival contentions and perused the record. The issue which arises in the present appeal is in respect of liquidated damages provided by the assessee in its books of account. The case of assessee before us is that in view of it taking up turnkey projects and as per the conditions of purchase order placed, the project has to be completed within stipulated period and in case the same is not so completed, then the assessee is liable to pay liquidated damages. Further, in case other conditions of the purchase order are not complied with by the assessee, then also as part of purchase order itself, there is a clause that the purchaser may at his discretion withhold any payments until the whole of stores has been supplied and he may also deduct recovery from the supplier liquidated damages. The major item of expenditure relates to damages of Rs. 1.56 crores claimed by and paid to M/s. Oil India Ltd. The assessee was duty bound to complete the said project within stipulated period and since the assessee could not fulfill the same, M/s. Oil India Ltd. vide letter dated 20.01.2001 demanded damages of Rs. 1.49 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....part of expenditure. Reliance placed upon by the learned Departmental Representative for the Revenue on the decisions of Hon'ble Supreme Court are misplaced as in both the cases, damages were paid on account of infraction of law and hence, were held to be not allowable as expenditure in the hands of said assessee. However, in the present case, liquidated damages are paid by the assessee on account of violation of terms of contract entered into with the parties to whom the goods have been supplied by the assessee. There is no infraction of law in such cases and accordingly, we find no merit in the orders of authorities below in this regard. Reversing the order of CIT(A), we direct the Assessing Officer to allow the claim of assessee also on account of provision made of Rs. 20,82,139/-. The ground of appeal No.12 raised by the assessee is thus, allowed and the ground of appeal No.7 raised by the Revenue is dismissed. 48. Now, coming to ground of appeal No.13 raised by the assessee which is against the disallowance out of sales and service charges of Rs. 18,85,000/-. 49. Brief facts relating to the issue are that, the assessee had debited provision for expenses in respec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....esent appeal is against the disallowance made on account of amounts debited under the head 'Sales and service charges' of Rs. 18,85,000/-. The assessee had debited the provision for expenses in respect of its unit at Nashik. The assessee claimed that as per contract / agreement, it was obliged to reimburse the value of certain excess i.e. on account of fuel consumption and / or consumption of lube oil. The assessee admittedly, has filed the agreement but the findings of CIT(A) are that the assessee had failed to give any details to show that it had violated the said terms and conditions. Further, the assessee was asked to clarify as to when the reimbursements were actually made but the said details were also not furnished. The CIT(A) has challenged the very factum of liability having been discharged and has confirmed the disallowance on this count. The Assessing Officer had disallowed the same to be on account of infraction of law. We find merit in the order of CIT(A), wherein the assessee has not established its case with regard to provisions made in the books of account on account of sales and service charges. The said liability arises from the terms of contract entered int....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arth Movers (supra) were at variance and where the assessee has not maintained any separate fund and even had not credited the provision amount to the individual employees account, then the liability to pay the leave encashment to the employees could by no means be recorded as having accrued. The Assessing Officer relied on the ratio laid down by the Hon'ble High Court of Karnataka in CIT Vs. Motor Industries Co. Ltd. (1998) 229 ITR 137 (Kar), wherein it was held that the provision for leave encashment was a component liability and hence, not deductible. The learned Authorized Representative for the assessee also referred to the provisions of section 43B of the Act which had been amended w.e.f. assessment year 2002-03 to allow deduction on account of leave encashment only on actual payment basis. Accordingly, disallowance of Rs. 2.11 crores. 57. The CIT(A) noted that the assessee was claiming deduction only on actual basis and where the assessee was following mercantile system of accounting and where the assessee was recognizing its liability towards leave encashment as accruing only in the year of payment and not earlier, then the onus was on assessee to justify the shift ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... amounts due to the employees for the year under consideration itself and hence, was to be allowed as deduction in its hands under section 37(1) of the Act. The Revenue on the other hand, noted that the assessee in earlier years was making the payments of leave encashment and was claiming the said expenditure on actual basis. The authorities below rejected the claim of assessee in this regard and held that where no amount has been paid by the assessee on account of leave encashment, there is no merit in making the provision for leave encashment. The assessee had declared the said change in practice in its Balance Sheet filed for the year under consideration. As per Note 18 of Schedule 21, the assessee had declared that accrued liability of Rs. 142.31 millions on account of privileged leave encashment (after including Rs. 121.12 millions as per prior period adjustment) has been recognized following the decision of the Hon'ble Supreme Court in Bharat Earth Movers Vs. CIT (supra) as against the past practice of accounting the same in the year of availment of encashment; as a result of this, profit for the year is lower by Rs. 21.19 millions. Admittedly, the assessee was foll....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Act though the final result as per Profit and Loss Account was income of Rs. 41,33,26,000/-. The assessee had not made the said computation on the ground that in view of overriding directions of the Board for Industrial and Financial Reconstruction (BIFR) under the scheme of amalgamation of M/s. Shivaji Works Ltd. (CWL), loss making company, observed that the assessee was under no obligation to pay Minimum Alternate Tax (MAT) until brought forward losses of the amalgamation company had not been fully set off. The Assessing Officer on the other hand, observed that section 115J or 115JB of the Act did not allow any exception with reference to take over of loss making concern, hence he proposed to compute the adjusted book profits at Rs. 41.50 crores. In response thereto, the assessee relied on the scheme sanctioned by BIFR and pointed out that the same would have overriding effect on the provisions of any other Act except Foreign Exchange Regulation Act or the Urban Land Ceiling Act. Reference was made to section 32(1) of Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). Reference was made to the order of BIFR, wherein it was specially sanctioned that the ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Departmental Representative for the Revenue on the other hand, relied on the order of CIT(A). 71. The learned Authorized Representative for the assessee also took us through the calculation of book profits from assessment year 1999-2000 onwards and the adjustment to be made on account of losses of amalgamating company. He also pointed out that in case this issue was decided in favour of assessee, the other issues raised on strictly without prejudice would become academic in nature. 72. We have heard the rival contentions and perused the record. The limited issue which arises for adjudication under this ground of appeal is whether the assessee is liable to be assessed on the book profits determined as per section 115JB of the Act. The case of assessee is that it had taken over the losses of amalgamating company M/s. Shivaji Works Ltd. The amalgamation was pursuant to the order of BIFR, under which the losses were also taken over by the assessee. In respect of BIFR proceedings, it may be pointed out that in the initial order dated 19.08.2001, it was held that the assessee would not be liable to pay taxes on the book profits under section 115JB of the Act till the losses of SWL ar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....remit this issue back to the file of Assessing Officer for limited purpose of determining the availability of losses and till the same are not fully adjusted, then the assessee cannot be taxed on book profits under section 115JB of the Act. The Assessing Officer is directed to allow reasonable opportunity of hearing to the assessee in this regard and pass the order within period of six months. Accordingly, the balance issues raised on without prejudice basis become academic. In view thereof, the ground of appeal No.16 is allowed. 75. The Revenue in ITA No.884/PUN/2006, relating to assessment year 2001- 02 has raised the following grounds of appeal:- 1. On the facts and in the circumstances of the case, and in law, the CIT (A) erred in deleting the addition of Rs. 29,51,493/- without appreciating the fact that the assessee worked out remuneration on tax free dividends. 2. On the facts and in the circumstances of the case, and in law, the CIT (A) erred in deleting the addition of Rs. 17,92,821/- made on account of administrative and managerial expenses for earning tax free dividend u/s.14(A). 3. On the facts and in the circumstances of the case, and in law, the CIT (A) err....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e dividend of Rs. 3,63,56,418/-, which was claimed as exempt under section 10(33) of the Act. Hence, the Assessing Officer proposed to disallow the claim towards remuneration / commission in the same ratio as the tax free dividends bore to the profit. The assessee pointed out that there was no bar under the Income Tax Act to claim remuneration / commission, etc. where the same was within the limits prescribed under the Companies Act. He also pointed out that the actual payments were less than the eligible amounts. However, the Assessing Officer rejected the same and out of claim towards remuneration / commission of Rs. 2.81 crores, he made disallowance of Rs. 29,51,493/-. 78. The CIT(A) held that it was not disputed by the Assessing Officer that the assessee's claim of remuneration / commission paid to the Directors was within the limits laid down under the Companies Act. He further noted that remuneration / commission paid to the Directors was less than 11% of the net taxable profits i.e. even after excluding the tax free dividends. He thus, held that the question whether or not tax free dividends ought to be excluded from the profits for the purpose of arriving at the admissibl....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... raised by the Revenue. 82. The issue in ground of appeal No.3 is against deletion of addition of Rs. 1,03,342/- made on account of penal interest. The assessee had claimed to have paid the said interest on account of delay in payment of interest on secured debentures to UTI and claimed the same to be compensatory in nature. The Assessing Officer however, held the payments to be penal in nature as there was no reasonable cause in the said delay. Before the CIT(A), the assessee explained that it had issued 4 lakh shares (19% secured redeemable nonconvertible debentures on private placement to LIC, UTI, etc.). The said securities in respect of debentures were required to be credited on or before 31.12.1992. But they were credited on 10.03.1993 and 01.09.1993. The institutions invoked the penal interest clause in the agreement and held the assessee liable to pay 2% per annum as penal interest for delay in creation of securities. However, later the said rate of interest was reduced to 1%, which was paid on 23.05.1994 and on redemption of debentures on 01.01.2000 when the assessee sought no objection letters from the institutions for satisfaction of the charges, UTI asked the assessee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aid down by the Hon'ble Supreme Court in SA Builders Ltd. Vs. CIT(A) & Anr. (2007) 288 ITR 001 (SC), wherein it has been held that in case the assessee makes advances for business purposes, then no part of interest on interest bearing funds is to be disallowed. Following the same parity of reasoning, we hold that where the assessee had entered into specific agreements with M/s. Kirloskar Consultants Ltd. in order to explore new avenues to enhance its business and also to increase its market conditions and had made the said advances in line with the agreement, then the said advance having been made during the course of carrying on of its business and against such advances, no part of interest relatable to interest bearing funds merits to be disallowed. Accordingly, we uphold the order of CIT(A) in this regard and dismiss the ground of appeal No.4 raised by the Revenue. 85. The issue in ground of appeal No.5 raised by the Revenue is against the order of CIT(A) in deleting the addition of Rs. 2,82,93,638/- on account of interest relatable to investments made in bonds and shares which are exempt under section 10(33) of the Act. The Assessing Officer noted that total investments d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er of Assessing Officer. 88. The assessee pointed out that the investments during the year were only Rs. 25 crores and not Rs. 75 crores as noted by the Assessing Officer. Our attention was drawn to the list of investments, wherein it has increased from Rs. 163 crores to Rs. 188 crores. He further pointed out that where the borrowings had come down by about Rs. 50 crores, then how it could be inferred that borrowed funds were utilized for making the said investments. Our attention was drawn to the Balance Sheet at pages, 20, 24 and 25 of the Paper Book. 89. We have heard the rival contentions and perused the record. The sole basis for making the aforesaid disallowance of interest expenses in the hands of assessee is on account of interest bearing funds utilized by the assessee. The Assessing Officer was of the view that in case the assessee had enough reserves and surplus, where was the need to borrow funds. We find no merit in the order of Assessing Officer, wherein the assessee is the best person to carry on any of its business in the manner it so likes and in case he thinks it fit to make certain borrowals, then merely because the borrowals have been made does not warrant th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he said internet developed by Smt. Aarti Kirloskar was meant for communication amongst the employees, dealers, customers. It was a medium for sharing information on products, services purposes, etc. Further, the assessee claimed that remuneration payable to her as consultant was approved by the Company Law Board at Rs. 60,000/- per month. However, the Assessing Officer did not accept the said claim of assessee and allowed only to the extent of 1/5th. The CIT(A) noted that the assessee had engaged Smt. Aarti Kirloskar as the consultant since 01.04.1998. He also noted that she was to set up a web initiative department with an objective to digitize information and move towards ebusiness. The CIT(A) held that there was no scope for amortizing the remuneration and allowed the claim in entirety in the hands of assessee. The Revenue is in appeal against the same. 94. The learned Authorized Representative for the assessee pointed out that the said professional fees was being paid since 1998 and even the Company Law Board had approved vide letter dated 15.03.2001 to pay remuneration of Rs. 60,000/- per month. In the totality of the above said facts and circumstances, where remunerat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed amount of Rs. 54,55,487/- under section 28 of the Act. The learned AO further erred in allowing himself to be misguided with nature of claim u/s 28 and bad debts u/s 36. He failed to appreciate the written and oral arguments put before him. 4.0 Vehicle Expenses - Rs. 113862 The learned CIT (A) erred in facts and in law in arbitrarily disallowing 2% of the expenditure incurred on Vehicles under section 37(1) amounting to Rs. 5693115/- as non business expenditure. He failed to appreciate that as per service conditions applicable to senior officers, company allows them to use company‟s vehicles for office work and any incidental personal use is treated as perquisites in the hands of officers as per Income - Tax Rules, 1962. He further failed to appreciate the system followed by the company for use of company vehicles. 5.0 lease Rent on Cars - Rs. 32398/- The learned CIT (A) erred in facts and in law in arbitrarily disallowing 2% of the expenditure incurred on Vehicle amounting to Rs. 16,19,872/- as non business expenditure. He failed to appreciate that as per service conditions applicable to senior officers, company allows them to use company‟s vehicles for ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... over a period of five years instead of allowing it in the current year without appreciating the method of accounting consistently followed by the assessee, the treatment given in the accounts and particularly when admittedly there is no provision in the Act to defer the expenditure. He thus exceeded his authority by going beyond the statute books. The disallowance is also based on estimates, surmises, conjectures and is without any basis and is untenable in law. 10.0 Disallowance out of Repairs - Rs. 2,07,728/- The learned CIT (A) erred on facts and in law in treating the expenses on fencing as capital expenditure. He failed to appreciate that we had already capitalized the cost of compound wall in earlier assessment years and during the current year no new asset has come into existence with the expenses of Rs. 2,07,728/-. 11.0 Disallowance out of Miscellaneous Expenses - Rs. 4,75,207/- The learned CIT (A) erred on facts and in law in disallowing 5% of General Expenses and miscellaneous expenses as non-business expenditure. He ought to have appreciated that in case of corporate assessee there cannot be any non business expenditure when auditors of the company in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uring the year, then the said expenses are to be allowed as prior period expenses in the hands of assessee. 99. The issue in ground of appeal No.3 raised by the assessee is not pressed and hence, the same is dismissed as not pressed. 100. The issue in grounds of appeal No.4, 5 and 6 is against disallowance out of vehicle expenses, lease rent on car and telephone expenses. The assessee had raised similar grounds of appeal No.6, 7 and 8 in assessment year 2001-02, wherein we have allowed the claim of assessee holding that no disallowance was to be made on account of personal use in the hands of assessee company. Following the same parity of reasoning, we allow grounds of appeal No.4, 5 and 6 raised by the assessee. 101. The ground of appeal No.7 is also linked to the issue raised by the assessee in assessment year 2001-02 vide ground of appeal No.11. Following the same parity of reasoning, we remit this issue also back to the file of Assessing Officer to carry verification exercise to work out the expenditure which is incurred on product advertisement and we uphold the disallowance of 5% out of total expenditure on guest expenses, presentation expenses and article & gener....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ure of Rs. 4,75,207/-. 107. The ground of appeal No.12 is in respect of applicability of section 115JB of the Act i.e. exemption from MAT as per BIFR order. The first issue raised vide ground of appeal No.12a is identical to the issue raised in assessment year 2001-02 vide ground of appeal No.16 (first part) and following the same parity of reasoning, we direct the Assessing Officer to verify the claim of assessee that the losses from amalgamating company are still available in its hands and if that is so, then no tax is to be charged on the book profits under section 115JB of the Act. The other ground of appeal No.12b become academic in nature and hence, the same is dismissed. 108. The Revenue in ITA No.1593/PUN/2011, relating to assessment year 2002-03 has raised the following grounds of appeal:- 1. On the facts and circumstances of the case, and in law the Ld. CIT (A) erred in deleting the addition of Rs. 42,45,425/- without appreciating the fact that the assessee worked out remuneration on tax free dividends. 2. On the facts and circumstances of the case, and in law the Ld.CIT (A) erred in deleting the addition of Rs. 20,88,126/- made on account of administrative and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....me parity of reasoning, we dismiss the ground of appeal No.3 raised by the Revenue. 112. The issue in ground of appeal No.4 is against deletion of addition of Rs. 1,07,61,723/- on account of interest relatable to investment made in bonds and shares which were exempt under section 10(33) of the Act. The learned Authorized Representative for the assessee in this regard, pointed out that there was no outgo of money as the fresh investments were because of re-structuring. Further, the assessee had sold shares and made the investments under section 54EA of the Act. He stressed that fresh borrowings made during the year were also because of re-structuring although, the loan liability had reduced from Rs. 115 crores to Rs. 108 crores at the end of year. We find that similar issue arose before the Tribunal vide ground of appeal No.5 in assessment year 2001- 02 and following the same parity of reasoning and in view of the facts and circumstances being similar, we find no merit in the ground of appeal No.4 raised by the Revenue and the same is thus, dismissed. 113. The ground of appeal No.5 raised by the Revenue is related to ground of appeal No.8 raised by the assessee on account of liq....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and is not a mere recommendation and as per CBDT notification it is binding on him. He further failed to appreciate that that under section 32(1) of the SICA, orders passed by the BIFR have overriding effect over the Income Tax Act. The CIT (A), therefore, erred in disallowing unabsorbed depreciation of SWL while computing profit u/s 115JB of the Act. 3.2 Capital receipts credited to Profit & Loss Account - Rs. 32,95,359/- Without prejudice to the above, while computing profit u/s 115JB of the Act, the learned CIT (a) failed to appreciate that the amount of Rs. 32,95,359/- included in operating income is of capital nature and is to be excluded." 116. The learned Authorized Representative for the assessee at the outset pointed out that ground of appeal No.1 raised by the assessee become academic in case the liquidated damages disallowed in earlier years are allowed in the hands of assessee. We find that the issue is linked to ground of appeal No.8 in assessment year 2002-03 and since we have already allowed the claim of assessee on account of liquidated damages, the ground of appeal No.1 is dismissed as academic. 117. The issue in ground of appeal No.2 is in respect of CEN....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee is against computation of book profits under section 115JB of the Act. The issue arising is as in earlier years. However, change in the year under consideration as against unabsorbed losses, the assessee for the year under consideration has pointed out the availability of unabsorbed depreciation of SWL to the extent of Rs. 14.81 crores. Following our parity of reasoning as in the paras hereinabove in relation to the ground of appeal No.16 decided in assessment year 2001-02, we remit this issue also back to the file of Assessing Officer to verify the claim of assessee in this regard. The ground of appeal No.3.1 is thus, allowed for statistical purposes. The ground of appeal No.3.2 is dismissed. 121. The Revenue is in appeal against the order of CIT(A) in ITA No.542/PUN/2012, relating to assessment year 2003-04 against the assessment completed under section 143(3) of the Act and has raised the following grounds of appeal:- 1. Whether on the facts and in the circumstances of the case, the Ld.CIT(A) was justified in holding that discount of Rs. 32,95,359/- received on prepayment of liability under the "Sales Tax Deferral Scheme‟, as not a remission or cessation of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es tax outstanding amount which was treated as loan. The appellant has cited the Special Bench decision in the case of Sulzer India Ltd. (2010) 134 TTJ (Mumbai)(SB) 385 in its support. It is noted that in this decision of the Special Bench, it was held that such premature payment of the deferred sales tax liability at its discounted value or at NPV cannot be treated as remission or cessation of liability u/s.41(1). This was because it cannot be said that the assessee had obtained the benefit of deduction of sales tax liability simply because the deduction was allowed for the purposes of section 43B initially, by applying the CBDT Circular No.496 dated 25/09/1987, and this circular only stated that the statutory liability was to be treated to have been discharged for the purposes of section 43B. I have carefully perused the ratio of this decision and I am of the opinion that this squarely covers the appellant‟s case. Therefore, the appellant‟s contention is held to be tenable in law and this ground of appeal is allowed." 125. After hearing both the learned Authorized Representatives, we find that in the Large Unit Engine having manufacturing facility at Nashik, the ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....igh Court of Delhi in CIT Vs. Virtual Soft Systems Ltd. in ITA Nos.216/2011, 398/2011, 403/2011, 404/2011 and 680/2011. Following the same parity of reasoning, we find no merit in the ground of appeal No.1 raised by the Revenue and the same is dismissed. 127. Now, coming to the second issue which is raised by way of grounds of appeal No.2 and 3 i.e. against the order of CIT(A) in deleting the addition made by the Assessing Officer on account of lease rental income of Rs. 3,50,44,140/-. 128. Brief facts relating to the issue are that, the Assessing Officer noted from Note No.16 forming part of accounts, that the assessee in terms of financial restructuring package sanctioned by IDBI in respect of Kirloskar Ferrous Industries Ltd. (KFIL), a company promoted by the assessee, was not entitled to receive lease rent in respect of assets leased to KFIL for the period from 01.04.2001 to 31.03.2011. The said aspect was because the rental to the assessee was subordinate to the dues of financial institutions. Consequently, the auditor stated that the lease rent amounting to Rs. 3,50,44,140/- had not accrued. Consequently, there was an adverse impact on current year's profits to the extent....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hi Bench decision in the case of Goodwill India Ltd Vs DCIT (2008) 114 ITD 665 which is also on the same ratio that the leas equalization charges as per ICAI Guideline are not to be considered for computing lease rental income under the I.T. Act. The Tribunal observed that even the ICAI was of the view that this method was meant only for recognizing the net income in respect of a finance lease at constant periodic rate of return, on the lessor's net investment outstanding in the lease and are not to be considered for determining the taxable income in accordance with the I.T. Act. Neither a debit under this head is to be allowed as deduction nor any credit is to be treated as income. Therefore there is no justification for treating the same as income and accordingly, is directed to be deleted." 130. In respect of second issue of actual lease rental of Rs. 3.50 crores, which was not accounted for by the assessee as part of Profit and Loss Account, even in the books of account, the CIT(A) noted the contention of assessee that because of financial restructuring package sanctioned by IDBI for KFIL, a company which was promoted by the assessee, the condition was that KFIL would not....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ppeal against the order of CIT(A) and has pointed out that where the income had accrued during the year, then the same merits to be added in the hands of assessee. 132. The learned Authorized Representative for the assessee on the other hand, referred to the Notes to accounts, Sr.No.16 at page 49 of Paper Book attached to the Balance Sheet, wherein it was pointed out that because of financial restructuring package, the assessee was not entitled to the said rent due from KFIL as per undertaking by the said concern with IDBI. The learned Authorized Representative for the assessee referred to the terms of the said restructuring package, copy of which is placed at page 132 of the Paper Book. He further stated that the assessee had substantial interest in KFIL and accordingly, did not offer the income in the hands of assessee. The learned Authorized Representative for the assessee further pointed out that no income was offered in the first two years and the rent was offered in assessment year 2004-05 and the taxes were paid on the same. In case the amount is taxed in the instant assessment year, then consequential effect is to be allowed in assessment year 2004-05. 133. We have hear....
X X X X Extracts X X X X
X X X X Extracts X X X X
....No.2 and 3 raised by the Revenue and the same are dismissed. 134. The Revenue is also in appeal against the order of re-assessment passed under section 147 of the Act vide ITA No.543/PUN/2012, relating to assessment year 2003-04 and has raised the following grounds of appeal:- 1. Whether on the facts and in the circumstances of the case, the Ld.CIT(A) was justified in directing the A.O. to delete the amount of lease equalization charges of Rs. 2,69,37,617/- and lease rental income of Rs. 3,50,44,140/- from the book profit computed u/s 115JB by ignoring the fact that the Auditors have specifically remarked in Col.3(g) of the Auditors Report that non recognition of lease rent and lease equalization charges resulted into lower profits by Rs. 6,19,81,757/- thereby not following the principle laid down in 325 ITR 565 (Delhi). 135. The appeal filed by the Revenue is against the order passed under section 143(3) r.w.s. 147 of the Act and the issue which has been raised by the Revenue is against deletion of addition made to the book profits under section 115JB of the Act on account of lease rental income and lease equalization charges of Rs. 6,19,81,757/-. The Assessing Officer was ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Mills (P) Ltd. (2010) 325 ITR 565 (Del), the said items of income though not considered in the Profit and Loss Account but the same needs to be added to the profit for the purpose of computation of book profits under section 115JB of the Act in the re-assessment proceedings. 139. The learned Authorized Representative for the assessee on the other hand, pointed out that the legal issue of reopening of assessment needs to be adjudicated in favour of the assessee, where the notice under section 148 of the Act was issued on 31.03.2010 i.e. beyond period of four years. Since all material facts were on record i.e. audit report, Notes to accounts, Profit and Loss Account and also there was discussion in the assessment order, then the principle laid down by the Hon'ble High Court of Delhi in CIT Vs. Sain Processing & Weaving Mills (P) Ltd. (supra) cannot be applied in re-assessment proceedings. On merits, the learned Authorized Representative for the assessee pointed out that it could not be said that the accounts of assessee were not correct. 140. The learned Departmental Representative for the Revenue on the other hand, relied on the order of Assessing Officer with special refe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....submitted at the time of assessment. 3.0 Bad debts and irrecoverable balances written off - Rs. 53,18,440/- The learned CIT (A) erred on facts and n law in disallowing irrecoverable debit balances as written off under section 36(1)(vii) of the Act when the assessee has claimed amount of Rs. 53,18,440/- under section 28 of the Act. The learned CIT (A) further erred in allowing him to be misguided with nature of claim u/s 28 and bad debts u/s 36. He failed to appreciate the written and oral arguments put before him. 4.0 Disallowance out of advertisement and publicity - Rs. 47,86,632/- The learned CIT (A) erred on facts and in law in disallowing 5% of the totals expenditure on product advertisement and sales promotion, liaison expenses, guest expenses, presentation and articles and general expenses as not being wholly and exclusively incurred for the purpose of business. He ought to have appreciated that auditors of the company in their reports under the Manufacturing and Other Companies (Auditor‟s Report) Order as well as the Tax Audit Report u/s 44AB of the Income tax Act, 1961 have categorically remarked that no personal expenses have been debited to the Profit an....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Officer to carry out verification exercise. However, we uphold the disallowance of 5% out of expenditure on guest expenses, presentation expenses and article & general expenses. No disallowance is to be made out of liaison expenses. The ground of appeal No.4 raised by the assessee is thus, allowed for statistical purposes. 147. The next issue vide ground of appeal No.5 on account of disallowance of liquidated damages of Rs. 24,23,145/- is also covered by our order in assessment year 2001-02 vide ground of appeal No.12 and also vide ground of appeal No.8 in assessment year 2002-03. Since the assessee is following consistent method of recognizing liquidated damages, accordingly, we allow the claim of assessee. The ground of appeal No.5 is thus, allowed. 148. The ground of appeal No.6 is in respect of club expenses of Rs. 1,33,600/-. Similar issue is decided by us in respect of ground of appeal No.5 in assessment year 2001-02 and following the same parity of reasoning, we allow the claim of assessee. 149. The Revenue in ITA No.950/PUN/2012, relating to assessment year 2004- 05 has raised the following grounds of appeal:- 1. On facts and circumstances of the case, and i....