TaxTMI 
TaxTMI 
2019 (12) TMI 375
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....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 assessee. For brevity the con spectus of consideration by the statutory authorities till the....
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....aid 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 Commissioner of Income-tax (Appeals) likewise set aside the order of the Assessing Officer disallowing the claim of Rs. 2,72,79,645 paid by the assessee to the employ....
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....cumstances 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 questions of law framed in this appeal and these contentions are examined firstly by relying on the concurrent findings of fact recorded by the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal and finally ....
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.... 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 assessee. It is declared accordingly." 8. The order of the Commissioner of Income-tax (Appeals) and the Tribunal having regard to the above decision, to the extent of granting complete deduction to the amount spent towards club membership fee and incidental expenses is untenabl....
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.... 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 Supreme Court in the case reported at Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273 (SC). Further, no separate accounts were being maintained for investments in mutual fund. Since, according to the Assessing Officer, investment was made from the common pool of fund, he allocated the proportionate amoun....
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....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 as allowable deduction in the returns filed for the subject year. The Assessing Officer while adding back a sum of Rs. 33.56 crores noted that the direct nexus between the assessee and the business of GPEL is disbelieved, and that there was no connection between the assessee and GPEL, none of the products....
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....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 gist of the findings reads thus : "39. We have considered the rival submissions carefully in the light of the material on record as well as the decisions cited by both the parties. We find that the assessee in order to establish a foothold for extension of its business in the State of Gujarat entered into an agree ment with GIIC for establi....
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.... 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 which amounted to Rs. 32.70 crores. In its board meeting held on June 26, 2002 it was decided that the amount recoverable from GPEL was not recoverable considering the overall facts and financial health of GPEL and, therefore, it was decided to write off the same. It was further decided in this meeting that this amount should be withdrawn from the general re....
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....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 intent was got issued from the Government of India to start new business of production and manufacture of copper clad laminates and the com pany known as GPEL was incorporated on May 2, 1999. The assessee with specific intention of establishing its foothold in the State of Gujarat for expansion of its existing business of tyre entered into col laboration with the Government of Gujarat throu....
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....garding 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 towards the rehabilitation scheme. The payment made by the assessee is, in fact, towards compliance of the Rehabilitation Scheme. It clearly shows that the assessee-com pany was trying to rehabilitate the operations of the GPEL but still the same could not be revived. Therefore, in addition to the above compulsions by the order of the BIFR, the assessee-company was fur ther required to defend its reputation by paying to the financial insti tutions and bankers towards d....
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....tion 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 observations it becomes clear that claim has to be allowed even if it is not necessary to make such payments if the pay ments had been made voluntarily on the grounds of commercial expediency. Further it is not necessary that such business should be that of the assessee itself. In the case before us though the amounts have been made in respect of GPEL but basically the assessee was trying to establish the new business through GPEL and was also try ing to achieve the larger business interest by establishing further facto....
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....e 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 the Tribunal and the Commissioner of Income-tax (Appeals) are findings of fact. No perversity is pointed out to us for deeper examination into this contention or change the effect of the entries by accepting the contention as a substantial question of law. Further the case of the Revenue is not that the deduction is unavailable in law, but the argument proceeds that the assessee could not have claimed the writing off of bad debt as a business loss in the peculiar circumstances of the case while computing total income. The i....
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....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 deduction under section 43B on payment basis. The assessee did not claim deduction of payment of Rs. 2,72,76,982 under section 43B of the Act for the assessee suffered loss in the assessment year 2001-02. In other words, the assessee did not claim deduction under section 43B of the Act since the assessee suffered loss in the assessment year 2001-02. 24. The reasoning of the Assessing Officer is that without making provision, claiming deduction in the assessment year 2002-03, when the assessee earns profit, is incorrect and the intention of th....
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....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 shows that deduction on account of any of the items mentioned in section 43B would not be allowed unless and until the payment has been made and the same is allowable in the year in which payment has been made irrespective of the assessment year in which liability for the same has been incurred and recognized by the assessee by the method of accounting adopted by him. Therefore, it is clear that items referred to in section 43B can be allowed only if payment has been made and the same are allowable in which payment has been made. Since the assessee has been making payment on account of....