TaxTMI 
TaxTMI 
2020 (2) TMI 62
X X X X Extracts X X X X
X X X X Extracts X X X X
....n of the said waiver of advance should have been allowed under section 36(l)(vii)/37(l)/28 and/or other provisions of Income Tax Act, 1961 (the Act). 2. Claim of Short term Capital Loss (Rs. 6,93,040) and Long Term Capital Loss (Rs. 1,29,78,811) on sale of R & D Assets : On the facts and in the circumstances of the case and in law the learned CIT (A) erred in confirming the action of the D.C.I.T in disallowing claim of short term capital loss of Rs. 6,93,040/- and long term capital loss of Rs. 1,29,78,811/- on sale of assets used for R & D purpose. The Appellant contends that though the entire cost of such assets was allowed as deduction u/s. 35 of the Act, such assets continued to be the Appellant's 'capital asset' as defined u/s. 2(14) of the Act and therefore the computation of capital loss was in line with the provisions of section 45 of the Act. 3. Claim of special pension liability based_on actuarial valuation of 1,27,75,558/-: On the facts and in the circumstances of the case and in law the learned CIT (A) erred in confirming the action of the D.C.I.T in disallowing claim of Rs. 1,27,75,558/- on account of special pension liabi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g a total income of Rs. 123,94,95,060/-, which was subject to scrutiny assessment under Section 143(3) of the Act dated 08.12.2006, whereby the total income was determined at Rs. 2,43,31,62,607/-. Subsequently, the assessment was set aside by the Commissioner of Income-tax under Section 263 of the Act and consequently, the impugned assessment under Section 143(3) r.w.s. 263 of the Act has been finalized, whereby the total income has been determined at Rs. 278,64,36,170/-. The present appeal before us is with respect to the grievance of the assessee against certain additions made in the impugned assessment order, which have since been affirmed by the CIT (A). 4. Insofar as the Ground of appeal No.1 is concerned, the same relates to a claim made by the assessee in the return of income of Rs. 15,11,15,380/- representing write-off or waiver of advance given to its subsidiary Mahindra Gesco Developers Ltd. (hereinafter referred to as MGDL). The facts relevant in this context can be summarized as follow. The assessee had a 'property development division', which was engaged in the business of development and sale of residential and commercial properties. As a part of this activ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ckground coming to the instant claim of right off/waiver of Rs. 15,11,15,380/- due from MGDL is concerned, assessee explained that getting the clearance for proper assignment of the title to land, etc. to MRIDL and/or MGDL was the responsibility of the assessee. As it took a very long time for getting clearances, MGDL made a claim before the assessee which was duly considered. This resulted in, inter-alia, waiver of Rs. 15,11,15,380/- representing amounts receivable by assessee from MGDL. In the return of income, assessee claimed that the aforesaid amount of waiver was allowable as a deduction under Section 36(1)(vii) or under Section 37(1) of the Act or alternatively as a business loss under Section 28 of the Act. 7. The Assessing Officer was not satisfied with any of the aforesaid claims put forth by the assessee. Firstly, with regard to assessee's claim of deduction as bad debt under Section 36(1)(vii) of the Act, the Assessing Officer observed that the requisite conditions contained in Section 36(2) of the Act were not fulfilled, as much as, the instant amount represented merely an advance, which had not been offered as income in any preceding years. Secondly, as per Ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... on account of various exigencies. The Ld. Representative for the assessee pointed out that a sum of Rs. 10,45,00,000/- as well as Rs. 39,00,00,000/- on account of service charges and interest respectively were earned by the assessee from the impugned transaction of development of NGE land, which have been offered to tax under the head 'profits and gains of business'. It was therefore, contended that the amount of Rs. 15,11,15,380/- was written-off/waived out of such advances and, therefore, it was to be understood as a 'part of debt' within the meaning of Section 36(1)(vii) of the Act. It was submitted that even otherwise the waiver was to be seen as a matter of business decision which facilitated recovery of the balance amount from MGDL in June, 2005. i.e. in the subsequent year. It was pointed out that a sum of Rs. 22,72,00,000/- crores was received in full and final settlement of the outstanding dues from MGDL in June 2005. So however, as far as the waiver of Rs. 15,11,15,380/- is concerned, this had occurred in the instant year and, therefore, the assessee had claimed the deduction in the instant year. 10. Repudiating the claim that the said amount was actua....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... respect to bad debts or part thereof which is written-off in the books of account of the assessee. Further, Section 36(2) of the Act states that no deduction under Section 36(1)(vii) of the Act shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year. Thus, we find that twin conditions, namely, (i) bad debts should be written-off in the books of account; and, (ii) debt or part thereof should have been taken into account in computing the income of previous year or earlier previous years, should be satisfied in order to allow the deduction under Section 36(1)(vii) of the Act. As regards the first condition, we find that the assessee has debited the impugned sum of Rs. 15,11,15,380/- in its Profit & Loss Account; and, the account of MGDL has been actually credited by the said amount and thus the amount due from MGDL stood abated or written-off to the said extent. We shall now examine the fulfilment of the second condition, i.e., whether the debt or part thereof was offered to tax by the assessee in previous ye....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se may be purchase of shares. Since both form a component part of the debt, the requirements of Section 36(2)(i) are fulfilled where a part thereof is taken into account in computing the income of the assessee." The Hon'ble High Court in the above case has analysed the ratio laid down by the Hon'ble Supreme Court in the case of CIT v. T. Veerabhadra Rao [1985] 155 ITR 152 and observed that when only the interest income was offered to tax by the assessee and not the loan itself, the requirement of Section 36(2)(i) of the Act is satisfied even though the principal amount of loan was not offered to tax as the interest represents the part of the debt and Section 36(2)(i) of the Act states that "debt or part thereof" shall be offered to tax. Applying the aforesaid judgment of the Hon'ble Supreme Court, the Hon'ble Bombay High Court in the case of Shreyas S. Morakhia (supra) held that when the assessee, a share broker, offered to tax the commission income earned on account of effecting the share transaction on behalf of the client and the client failed to pay the transaction amount, since the assessee had offered the commission income to tax, which is the part of the e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ppeal no. 3 is concerned, it pertains to disallowance of claim of special pension liability based on actuarial valuation of Rs. 1,27,75,558/-. In the course of hearing, the ld. Representative for the assessee did not press for allowance of the entire claim of special pension liability and only pressed the alternative Ground with respect to proportionate amount allowable under Section 35DDA of the Act. It was submitted that the Assessing Officer himself has allowed deduction under Section 35DDA of the Act on the above payments in subsequent years. It was submitted that there was amendment in Section 35DDA of the Act and after the amendment, any payment made in connection with a Voluntary Retirement Scheme (VRS) was allowed as deduction over a period of 5 years in equal instalments. It has been pointed out that this aspect has been accepted by the Assessing Officer in the order giving effect to the order of the Tribunal for Assessment Year 2006-07. 19. Since the Assessing Officer himself has allowed the claim of the assessee under Section 35DDA of the Act in subsequent years, we direct the Assessing Officer to allow the claim under Section 35DDA of the Act for the year under consi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l, the Assessing Officer accepted the fact that impact of Section 145A of the Act is tax neutral and deleted the addition made in the order under Section 143(3) of the Act in respect of unutilised CENVAT. Since the Assessing Officer himself has accepted the fact that Section 145A of the Act is tax neutral in assessment year 2006-07, the ld. Representative for the assessee submitted that the Assessing Officer should be directed to delete the addition made for the instant year also; a copy of order passed by the Assessing Officer under Section 143(3) r.w.s. 254 of the Act for Assessment Year 2006-07 was also furnished before us. 22. It has been pointed that the above issue is covered in favour of the assessee by the decision of Hon'ble Bombay High Court in the case of CIT v. Diamond Dye Chem Ltd. [2017] 396 ITR 536 wherein the Department had filed an appeal before the Hon'ble High Court against the decision of the Tribunal deleting the addition made by the Assessing Officer to closing stock on account of unutilised CENVAT credit. The Hon'ble High Court in that case has dismissed the appeal of the Department. 23. Per Contra, the ld. DR relied on the orders of lower a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....upra) and followed by the Hon'ble Bombay High Court in the case of Diamond Dye Chem Ltd. (supra), we set-aside the order of the CIT (A) and direct the Assessing Officer to delete the addition made on account of unutilised MODVAT credit. This Ground of appeal is accordingly allowed. 25. Insofar as Ground of appeal no. 5 is concerned, the same relates to the manner of computation of deduction under Section 80HHC of the Act. The grievance of the assessee is that the lower authorities have wrongly considered the following receipts as excludible from the 'profits of business' in terms of Explanation (baa) to Sec. 80HHC of the Act :- a. Income from services rendered Rs. 4065.22 lakhs b. Property Development activity Rs. 1720.27 lakhs c. Income from scrap Rs. 2198.94 lakhs d. Royalty Rs. 545 lakhs 26. Insofar as income from services rendered and Property Development activity is concerned, the plea of the Ld. Representative was that the same are a part of regular operations, and same have been accepted as 'profits of business' for the purpose of Sec. 80HHC of the Act in the past years also. It is contended that the same cannot b....