TaxTMI 
TaxTMI 
2019 (12) TMI 375
X X X X Extracts X X X X
X X X X Extracts X X X X
....assess ment year 2002-03. On March 17, 2004, the assessee filed revised return. On April 12, 2004, notice under section 148 of the Income-tax Act, 1961 (for short the "Act") was issued by the Assistant Commissioner of Income-tax (I), Ernakulam. The assessee through communication dated April 29, 2004 requested the Assessing Officer to treat the revised return dated March 17, 2004 as the return filed in pursuance of notice issued under sec tion 148 of the Act. The Assessing Officer (for short "AO") vide assessment order dated February 24, 2006 determined the total tax payable by the assessee as Rs. 13,95,78,296. The assessee aggrieved by the order of assess ment dated December 12, 2008 filed an appeal before the Commissioner of Income-tax (Appeals) in Appeal No. I. T. A. No. 80/R-1/E/CIT-II/05-06. The Commissioner of Income-tax (Appeals) allowed the appeal in part. The Revenue filed I. T. A. No. 429/Coch/2006 before the Income-tax Appellate Tribunal and the appeal was allowed in part by the Tribunal. Hence the tax appeal before this court under section 260A of the Act. The Assessing Officer made a few important additions and also disallowed a few substantial deductions claimed by the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n extent of Rs. 31,66,617 (-) Rs. 3,30,000 = Rs. 28,36,617. The disallowance of entertainment expenditure amounting to Rs. 1,63,815 is set aside and deduction to the said extent was permitted. The disallowance of expenditure by reference to section 14A is set aside and held that the appellant is entitled to deduction both in law and fact. The next major head of disallowance ordered by the Assessing Officer is Rs. 32,69,65,146 paid by the assessee to Gujarat Petro Electricals Ltd. (GPEL), a joint venture established by the assessee and the Government of Gujarat. The attendant circumstances in this behalf are that the assessee as a shareholder, with about 51 per cent. shares in GPEL, was obliged, while implementing a scheme approved by the BIFR and also as a business exigency paid to GPEL from reserve fund a sum of Rs. 32.70 crores and had written off the debt of GPEL in its books of account. The deduction is claimed as business or trading loss. The Assessing Officer disallowed the entire claim of Rs. 32.70 crores. The Commissioner of Income-tax (Appeals) allowed the deduction and held that the claim for setting off from the profits made by the assessee is lawful and permissible. The....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e case, the Tribunal is right in law in allowing the deduction for the bonus in the assessment year 2002-03 claimable and paid in the assessment year 2001-02 ? 5 (a) Whether, on the facts and in the circumstances of the case and sections 115JA and 115JB being similar should not the Income-tax Appellate Tribunal have, in the light of the decision of the Supreme Court reported in Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273 (SC), held that in the context of computation of book profit under section 115JB no adjustment other than provided in the statute could be made ? (b) Whether on the facts and in the circumstances of the case should not the Income-tax Appellate Tribunal have agreed with the computation of book profit by the Assessing Officer ?" 6. We have heard the learned standing counsel for the Revenue Sri Christopher Abraham and the learned senior counsel Mr. Joseph Markos for the assessee. We may at the outset point out that the counsel appearing for both the parties have substantially reiterated the submissions made before the Tribunal or the appellate authority. The learned standing counsel appearing for the Revenue reiterates the substantial questi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted by the Com missioner of Income-tax (Appeals) in the appeal preferred by the assessee, following similar orders passed in the assessee's own case for the assessment years 1998-99 and 1991-92, whereby the additions made by the Assessing Officer had been deleted. 19. In the appeal preferred by the Revenue, the Tribunal noted that the decision of the Tribunal under similar circumstances in respect of the assessment year 1991-92 (in the assessee's own case) had been accepted by the Revenue and that the said finding was supported by the decisions of other High Courts as well, which stood in favour of the assessee. It was accordingly, that the order passed by the Com missioner of Income-tax (Appeals) in favour of the assessee was upheld and the appeal preferred by the Revenue was dismissed in relation to the challenge against 'club expenses'. The finding arrived at by the Tribunal is well supported by reasons. The amount spent for acquiring membership in the clubs stands on a different pedestal from the amounts incurred for availing materials supplied or service pro vided in the clubs. This court finds that the said issue is to be answered in favour of the ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... funds, and added Rs. 15,59,046 to the net income of the assessee. The Commissioner of Income-tax (Appeals) held that the inclusion of interest in the net income of the assessee is without proper verification of the accounts and held that the assessee is entitled to deduction amounting to Rs. 15,59,046 under section 115JB. In other words, inclusion of interest in the net income is unsustainable. The Tribunal, after considering the rival contentions, held as follows : "13. Ground No. 3 : After hearing both the parties, we find that during the assessment proceedings the Assessing Officer noted that the assessee has reduced a sum of Rs. 10,59,119 being dividend received from UTI Mutual Fund and Bank of India from the book profits under section 115JB. He further noticed that no amount of expenditure has been reduced from this. On enquiry, it was submitted that no borrowed funds were used for buying these units and, there fore, there was no nexus between the borrowed funds and interestfree investments. It was noted by the Assessing Officer that such funds were being invested from the pool of funds and the same argu ment was taken by the assessee in the earlier year before the S....
X X X X Extracts X X X X
X X X X Extracts X X X X
....x (Appeals). Therefore, to the limited extent now required, we may refer to the undisputed circumstances relied on by the parties in this behalf. Rs. 33,56,74,286 disallowed includes a sum of Rs. 32.70 crores paid by the assessee from reserve funds of GPEL as guarantor of bank loans. The assessee as part of its business expansion designs, decided to gain foothold in the State of Gujarat and in fact established a tyre manufacturing unit at Baroda, State of Gujarat. As part of this business design forayed into forming GPEL with the Gujarat Industrial and Investment Corporation (GIIC). Thus set up a new business through the joint venture company known as GPEL. The assessee had acquired 51,80,000 equity shares of Rs. 10 each in GPEL which comes to 37.45 per cent. of share capital of GPEL. The assessee stood as guarantor to loans borrowed from banks by GPEL. GPEL went before the BIFR and it was finally ordered to be wound up, thereby the assessee being the guarantor to GPEL had to ultimately pay Rs. 32,69,65,146 to the financial institutions/banks under one-time settlement. In these circumstances, the assessee has written off the debt of GPEL and claimed the amount of Rs. 32.70 crores a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... circumstances, allowing such deduction is not correct and the disallowance ordered by the Assessing Officer ought to have been maintained by the Tribunal and the Commissioner of Income-tax (Appeals). The Revenue can make out a substantial question that the concurrent findings of fact noted and recorded by the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal are based on no evidence and/or while arriving at the said finding, relevant evidence has not been taken into consideration or inadmissible evidence has been taken into consideration or the legal principles have not been applied in appreciating the evidence or whether the evidence has been misread or that the orders in appeal have misinterpreted or wrongly applied law to the issue on hand. Therefore unless one or the other grounds is made out, the Revenue cannot successfully challenge the findings of fact recorded by the Commissioner of Income-tax (Appeals) and the Tribunal. We are for the purpose of appreciating the findings under challenge find it useful to refer to the order of the Tribunal. 16. The Tribunal has considered each one of the contentions urged by the Revenue in this behalf and the gi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....debenture hold ers were also required to waive 50 per cent. of the interest. The Government of Gujarat was required to (i) defer the payment of pur chase tax on the basis of interest-free deposits ; (ii) to defer sales tax liability ; (iii) to defer octroi duty ; and (iv) to defer electricity duty. The Central Government to grant -(i) an exemption from section 41(1) of the Income-tax Act, (ii) an exemption from section 36(1) of the Act, (iii) to exempt the company from the provisions of sections 100 to 102 of the Companies Act, 1956 ; and (iv) to exempt the com pany from the applicability from the provisions of section 81A of the Companies Act. 40. The assessee-company was further exempted from compliance of section 372 of the Companies Act and from the SEBI Regulations. Even Ahmedabad Electricity Corporation was required to make mini mum demand charges and penalty thereon as well as to ensure unin terrupted power supply to GPEL. The equity capital was also required to be written down by 90 per cent. In view of this scheme, the asses see-company made payments in the form of guarantees and/or payment of loans and interest charges to the banks and financial institutions whic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and the payments have been made in terms of the settlement approved by the BIFR. 43. On the above facts we are required to find out whether the assessee's claim is allowable. For this, we need to look at the proper aspect of the whole issue. The assessee is a company engaged in the manufacture and sale of tyres and tubes but at the same time it is authorised by clause IIIB(6) of 'objects incidental or ancillary to the attainment of the main object' which reads as under : '6. To amalgamate, enter into partnership or into any arrange ments for sharing profits, union of interests, co-operation, joint-ven tures, or reciprocal concessions or for limiting competition with any person or company carrying on or engaged in or about to carry on or engage in or which can be carried on in conjunction therewith or which is capable of being conducted so as to directly or indirectly benefit the company.' The above clause clearly shows that to meet the aspiration of becoming a diversified company the above clause authorised it to enter into any partnership or arrangement to start any business. Therefore, for getting into the new business a letter of in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ity as well as octroi duty and electricity duty ; (v) The Central Government was required to grant exemption under section 41(1) of the Income-tax Act for remission of liability and to give exemption under section 36(1)(iii) of the Income-tax Act for notional interest on the promoters' contribution. The Government was further required to exempt the company from the provisions of sections 100 to 102 of the Companies Act regarding alteration/deduc tion of share capital ; (vi) Further it was required to grant exemption from the provi sions of section 81A of the Companies Act and compliance of the SEBI guidelines for issue of optional convertible debentures. (vii) The Government was also required to grant exemption to ATL, i. e., the assessee-company from compliance of provisions of section 370A of the Companies Act ; (viii) The Ahmedabad Electricity Corporation was required to waive minimum demand charges and penalty from the date of dis continuation to the date of reconnection and was further directed to ensure uninterrupted power supply. (ix) The assessee-company was specifically required to bring in capital of Rs. 291 lakhs ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt (B.) Ltd. [2002] 254 ITR 377 (Delhi) observed as under (page 9 of 288 ITR) : 'We agree with the view taken by the Delhi High Court in CIT v. Dalmia Cement (B.) Ltd. [2002] 174 CTR (Delhi) 188; [2002] 254 ITR 377 (Delhi) that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circum stances of the case. No businessman can be compelled to maximize its profit. The Income-tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own viewpoint but that of a prudent businessman. As already stated above, we have to see the transfer of the borrowed funds to a sister-concern from the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits.' From the above observat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e's liabilities, the same has to be reduced even from the book profits so that the profits taxed earlier do not suffer tax again and that is why the Legislature has provided the reduction of amounts with drawn from reserve under clause (i) of Explanation 1 to section 115JB." 18. The Tribunal held that the contention of the Assessing Officer if accepted literally amounts to deciding the priorities of the business exigencies of the assessee, as long as the truthfulness of the entries is not doubted and it is not a case of siphoning off of money through cheap fictitious entries, the Tribunal held that there was no need to interfere with the findings recorded by the Commissioner of Income-tax (Appeals). 19. The learned counsel for the Revenue contends that the GPEL is not a subsidiary of the assessee-company and that the writing off of debt of GPEL in the books of the assessee is completely impermissible. While answering the said contention, we may quickly add that the Revenue is not disputing the entries in the books of account and circumstances considered either by the Commissioner of Income-tax (Appeals) or the Tribunal. Therefore, for all purposes the findings recorded by....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tax (Appeals) and the Tribunal do not attract the scope of interference of this court under section 260A of the Act and therefore, we confirm the findings and answer the point against the Revenue and in favour of the assessee. We hasten to add that the confirmation of findings of the Tribunal and the Commissioner of Income-tax (Appeals) by this court is in the circumstances considered for the current assessment year and ought not be treated as a precedent for claiming deduction under similar heads in the subsequent assessment years or any other assessment year in future. Such situations are independently considered as and when the situation arises. Point No. IV 22. The Assessing Officer disallowed the deduction claim of the assessee made towards the payment of bonus in the assessment year 2002-03 payable for the assessment year 2001-02. 23. The Assessing Officer noticed that during the assessment year 2001-02 a provision towards payment of bonus amounting to Rs. 4,55,00,000 was made. The assessee before filing the return for the assessment year 2001-02 paid a sum of Rs. 2,72,76,982 out of Rs. 4,55,00,000. The assessee did not claim at the time when it becomes due to get de....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of this Act a deduction otherwise allowable under this Act in respect of- . . . (c) any sum referred to in clause (ii) of sub-section (1) of section 36, or . . . shall be allowed (irrespective of the previous year in which the lia bility to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him : Provided that nothing contained in this section shall apply in rela tion to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return. Clause (c) makes reference to clause (ii) of sub-section (1) of sec tion 36 which refers to any sum paid to an employee as bonus or commission. Therefore, payment on account of bonus is also con trolled by section 43B. The plain reading of the provision clearly show....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... No.75/Coch/2006 to appreciate the grounds raised by the assessee. The definite ground raised by the assessee reads thus : "Bonus relating to the financial year ended March 30, 2002 which was paid during the financial year ended March 31, 2003 and before the due date of filing of Income-tax return for the assessment year 2002-03, was claimed in the assessment year 2003-04 and was allowed by the Commissioner of Income-tax (Appeals) in the assess ment year 2003-04 (Para 8 of the Commissioner of Income-tax (Appeals) for the assessment year 2003-04). If for any reason the said decision is reversed, such amount may be allowed in the assessment year 2002-03." 28. Then the Tribunal excerpted section 43B of the Income-tax Act and held that clause (c) of section 43B makes reference to clause (ii) of sub-section (1) of section 36. If refers to any sum paid to an employee as "bonus" or "commission". Therefore, the payment on account of "bonus" is controlled by section 43B. The plain construction of the provision, i.e., section 43B(c) shows that the deduction on account of any of the items mentioned in section 43B would not be allowed unless and until the payment has been....