TaxTMI 
TaxTMI 
2019 (8) TMI 288
X X X X Extracts X X X X
X X X X Extracts X X X X
.... funds in the form of reserves and surplus which were utilized for making investments; b. Where no expenditure has been actually incurred, no disallowance of expenditure could be made on a notional basis. 3. Alternatively and without prejudice, the CIT(A) erred in referring the matter to the Deputy Commissioner of the Income Tax - 1(1), Mumbai ("the AO") with regard to working out the total expenditure incurred in relation to exempt income under section 14A of the Income Act, 1961 ("the Act"). Ground II: Disallowance of inventory written off of Rs. 23,480,619 1.On the facts and circumstances of the case and in law, the CIT (A) erred in disallowing inventory written off amounting to Rs. 23,480,619 on the ground that the said inventory was still lying with the Appellant Company. 2. In doing so, the CIT (A) erred in not appreciating that, though the said amount has been debited to expenses account, an equivalent credit entry has been made to raw material consumption account, thereby reducing the raw material consumption and resulting in no impact on the Profit and Loss account; 3.In view of the above grounds, the Appellant prays th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is no disallowance could be made. 4. Alternatively, the CIT(A) ought to have accepted that the owned funds of the appellant were sufficient enough to cover the advances to its subsidiary companies and therefore no disallowance of interest under section 36(l)(iii) was to be made. Ground VI: Disallowance of capital advance and depreciation of Rs. 3,477,261 1. On the facts and circumstances of the case and in law, the CIT (A) erred in disallowing the writing off of advances given to vendors for purchase of ERP software and depreciation amounting to Rs. 3,477,261. 2. In doing so, CIT (A) failed to appreciate and ought to have held that: a. the write off relating to capital advanced to vendors of Rs. 1,553,840 on unsuccessful ERP project was in the course of business of the Appellant Company and therefore should have been allowed as a revenue expenditure/ loss under the Act; b. the depreciation of Rs. 1,923,421 was grouped under depreciation schedule of the books of account and was voluntarily disallowed while computing income under the normal provisions of the Act. The aforesaid disallowance therefore led to double disallowance of d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt taken for the purpose of computation of capital gains on sale of land by the Appellant was of the same value as adopted by the registering authority for the purpose of stamp duty valuation; b. the stamp duty valuation as considered by the CIT (A) included composite consideration of land and building together and the Appellant has taken sales consideration to the extent of land for the purpose of computation of capital gains. 3. The Appellant, therefore, prays that disallowance under section 50C should be deleted. The only Ground of appeal raised by the Revenue reads as under: "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is right in restoring the issue of disallowance of Rs. 6,31,74,997/- u/s. 14A as per rule 8D to the Assessing Officer's file and directing that disallowance to be as per immediate preceding year in the light of observation of jurisdictional High Court in the case of Godrej Boyce Mfg. Co. Ltd. vs. DCIT 234 ITR 1 (Bom.) as the decision of Hon'ble Bombay High Court is not accepted by the Department." 3. In so far as Ground of appeal no.1 of the assessee and the ground raised by the Revenue are....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Assessing Officer following the judgment of Hon'ble High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. vs. DCIT (supra), since the decision of the Hon'ble Bombay High Court has not been accepted by the department. 6. In our considered opinion the decision of the CIT(A) raised on the footing that the provisions of Rule 8D of the Rules are not applicable for the instant assessment year, as the same is applicable from assessment year 2008-09 onwards. This proposition is indeed in the case of Godrej & Boyce Manufacturing Co. Ltd. vs. DCIT (supra), which continues to hold the field as the said provision has not been altered by any other authority. Hence, the decision of the CIT(A) on this aspect is confirmed and the ground raised by the Revenue is dismissed. 7. In so far as the plea of the assessee is concerned, our attention has been drawn to the proceedings in the assessee's own case by way of orders of the Tribunal right from A.Y. 2002-03 to A.Y. 2006-07. In so far as A.Y. 2002-03 is concerned, on the issue of interest expenditure the Tribunal restricted the disallowance to Rs. 7,61,476/- on account of finding recorded by the CIT(A) that some investment had nexus....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ial costs. In this regard, he has also mentioned to the observations of Hon'ble Allahabad High Court in the case of Dhampur Sugar Mills Ltd. vs. CIT 51 taxmann.com 508 "Whether or not, the Assessing Officer is not satisfied with the correctness of the claim of the assessee has to be deduced from the assessment order and there is no straight jacket formula requiring the Assessing Officer to use any particular language or form. So long as the order of Assessing Officer indicates that he is not satisfied with the correctness of the claim of the assessee or claim of the assessee that no expenditure has been incurred, the Assessing Officer has to proceed in the manner indicated Rule 8D(2)." 10. We have carefully considered the rival submissions. We are conscious that each assessment year is an independent unit of assessment and is liable to be decided on a unit basis. So far as certain facts for more than one assessment year are definitely required to be adjudicated in a uniform manner. We are saying this for the reason that though the factual assertions of the assessee having substantial own funds which are more than the investments that yielded interest free income, we are consciou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted the contention of assessee and relying upon the decision of Hon'ble Bombay High Court in CIT vs. Herdilla Chemicals Ltd. (255 ITR 532 Bom) disallowed the inventory written off holding that there is nothing which can positively indicate that the decision of write off was based on any material available during the year and items in question were steel lying with the assessee. During the previous year, the assessee had written off Rs. 2,34,80,619/- in its books of account towards reduction in value of inventory. The said reduction in respect of obsolete stock, non-moving items, slow moving items and other item of spare parts accessories etc., which were of no utility pursuant to main product, which became outdated. The written off pertains to following divisions: Division Amount in (Rs.) Textile division 4,514,666 Engineering division 357,285 FAL Energy 18,608,668 Total 23,480,619 15. The ld. AR for the assessee further submits that against the inventory written off, the assessee had, during the year created a provision for reduction in value of inventory for an identical amount of Rs. 2,34,80,619/- and reduce the same from material consumed. The l....
X X X X Extracts X X X X
X X X X Extracts X X X X
....1-12 has been allowed by First Appellate Authority in order dated 17.11.2016 and 20.03.2017 respectively. Therefore, considering the peculiarity of fact for the year under consideration, we are of the view that the assessee is entitled for inventory written off, however for limited purpose, the issue is restored to the file of Assessing Officer to verify the fact, if equivalent provision thereof had been made in the books and there is no impact on Profit & Loss Account and allow the relief to the assessee in accordance with law. In the result, this ground of appeal is allowed for statistical purpose. 18. Ground III relates to disallowance on account of non-deduction of TDS. The ld. AR of the assessee submits that during the year under consideration, the Assessing Officer on the basis of information received from ITO-1 that assessee paid Rs. 11,78,136/-. The Assessing Officer requested for the details based on the information. The Assessing Officer without providing any information or details added Rs. 11,78,136/- to the income of assessee. No opportunity was granted to the assessee. The nature of said payment are not known to the assessee. The assessee was unable to comprehend o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....firming the action of Assessing Officer, when the assessee has specifically stated that the alleged recipient i.e. Jahangir Homi Bhandara is not known to the assessee. Therefore, considering the fact that the Assessing Officer neither shared the information/material evidence allegedly received by him nor brought any material to prove that assessee made any payment of expenditure attracting the provisions for disallowance under section 40A(ia). Hence, we direct the Assessing Officer to delete the disallowance of Rs. 11,78,136/-. In the result, this ground of appeal is allowed. 21. Ground No. IV relates to disallowance of service tax written off (the AO and ld. CIT(A) referred it as sales tax). The ld. AR of the assessee submits that assessee in its books of account, accounted the payment of rent net of service tax. The amount paid towards service tax was debited to a separate account in the books for availing credit against the output service tax liability. The input tax credit available to the assessee, on payment of service tax on rent, was to be adjusted against this output tax liability. Therefore, with a view to identify and collate separately the service tax for which it wa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat this ground of appeal is covered in favour of assessee by the decision of Tribunal for A.Y. 2002-03 dated 12.06.2013, for A.Y. 2003-04 dated 10.08.2016, for A.Y. 2005-06 dated 28.02.2017 in and again for A.Y. 2006-07 in ITA No. 5539/Mum/2011 dated 05.04.2017 by following all earlier decisions. The ld. DR submits that assessee has sufficient interest free funds available with the assessee. Therefore, no disallowance under section 36(1)(3) was warranted. The ld. AR further submits that the issue is also covered by the latest decision of Hon'ble Supreme Court in CIT vs. Reliance Industries reported in [2019] 410 ITR 466 (SC). The ld. AR of the assessee submits that the Assessing Officer relied upon the decision Phalatan Sugar Works Ltd. (208 ITR 989), which has been reversed in S.A. Builders vs. CIT [288 ITR 1 (SC)]. 25. On the other hand, the ld. DR for the revenue submits that this issue may be sent back to the Assessing Officer for examination, if the assessee has sufficient interest free funds available with them. 26. We have considered the submission of the parties and gone through the orders of authorities below. During the assessment, the Assessing Officer noted that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as observed that in the absence of any verification that the advances to the subsidiary companies was only out of self-generated income, assessee's claim cannot be accepted. In this context, it is necessary to observe, the Assessing Officer in Para-3.5 of the assessment order has mentioned that the total funds available with the assessee amounted to Rs. 370,18,68,522, out of which, Rs. 167,20,18,599, was borrowed funds. Thus, from the aforesaid figures, it is very much evident that the assessee was having sufficient self-generated / interest free funds available with it to make interest free advance of Rs. 25,67,46,923. In fact, the learned Commissioner (Appeals) has also observed, advances have been made out of common funds available with the assessee which includes both self-generated funds and borrowed funds. As held by the Hon'ble Jurisdictional High Court in CIT v/s Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom), when mixed funds are available with the assessee, the presumption would be, the interest free advances have been made out of the interest free funds available with the assessee. Therefore, applying the ratio of the Hon'ble Jurisdictional High Court....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er section 32 of the Act. Rs. 40,78,10,250/- pertains only to those assets which have been put to use by the assessee and does not include in accelerated depreciation. Effectively accelerated depreciation of Rs. 19,23,421/- was offered to tax by assessee on account of disallowance of entire amount of book depreciation and disallowance by Assessing Officer resulted in disallowing the accelerated depreciation twice. On the disallowance of advance to vendor for ERP software of Rs. 15,53,840/-, the ld. AR submits that during the period the assessee was in process of implementation of ERP system for Patvolk (Shipping Division). The ERP system did not metalized as per expectation and therefore, the implementation of ERP system was scrapped. The advance is given to various vendors for supply of software, after considerable effort for recover, were written off. The ld. AR submits that the written off with regard to advance paid to vendors is a business loss and is allowable deduction. In support of his submission, the ld. AR of the assessee relied upon the decision of Hon'ble Bombay High Court in CIT vs. Raychem RPG Ltd. [2012] 21 taxmann.com 507 (Bom), decision of Tribunal in DCIT vs. M/s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....,23,421/- was offered to tax by assessee on account of disallowance of entire amount of book depreciation and disallowance by Assessing Officer resulted in disallowing the accelerated depreciation twice and it should be deleted. We have noted that the lower authority has not examined the clam related to the factual explanation furnished by assessee on depreciation on accelerated basis. Therefore, this part of disallowance is restored to the Assessing Officer to verify the fact as explained by assessee before ld. CIT(A) as well as before us and grant relief to the assessee in accordance with law. 32. Ground No. VII relates to disallowance of prior period expenditure of Rs. 1,31,75,381/-. The ld. AR of the assessee submits that prior period expenses pertain to raw-material consumed in respect of textile division. The textile division of company was implementing a new ERP system in process of switching over the erstwhile to the new ERP system certain purchases of raw-material, which had been consumed, had been inadvertently not incorporated in the books of account of the assessee. As per the information available with the assessee, the expenditure on raw-material consumption pertai....
X X X X Extracts X X X X
X X X X Extracts X X X X
....low the same in the year to which is pertains. In the result, this ground of appeal is allowed for statistical purpose. 35. Ground No. VIII relates to provision for contingencies and recoveries for calculation of books profit. The ld. AR of the assessee submits that he is not pressing provision of doubtful debts and advances of Rs. 25,15,054/-, provision for doubtful debts advances (schedule-10) of Rs. 4,85,06,535/- and provision for diminution of value of investment of Rs. 13,63,841/-. The ld. AR submits that he is pressing only remaining two items i.e. provisions for contingencies for Rs. 59,45,570/- and provision for recoveries 8,18,62,437/- . The ld. AR submits that for provisions of contingencies the assessee explained to the Assessing Officer that the addition on account of provisions for contingencies have already been considered by assessee in the return of income. However, due to inadvertence in computing "book profit" the amount of provisions for contingencies was taken at Rs. 26,64,467/- instead of amount as per Profit & Loss Account at Rs. 59,45,570/- . This typographical error was brought to the notice of Assessing Officer vide letter dated 27.11.2009. The Assessing....