TaxTMI 
TaxTMI 
2017 (8) TMI 1609
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....ture attributable to the exempt income having a direct nexus for earning such income can be disallowed u/s 14A. Thus, the addition made by the learned assessing officer are upheld on assumptions, without assigning any logical reason for rejecting the claim of the Appellant and without considering the facts and the applicable provisions of the law. 2. However, subsequently, the assessee vide application dated 9.1.2017 has sought to take certain additional grounds of appeal and, accordingly, filed revised the grounds of appeal, which reads as under:- 1. The Learned Deputy Commissioner of Income Tax was not justified in disallowing an amount of Rs. 1,97,70,000/- under Section 14A of the Income Tax Act 1961. The Learned Commissioner of Income Tax (Appeals) was not justified in confirming the same, in principle. 2. The Learned Commissioner of Income Tax (Appeals) erred in law and on the facts in directing the AO to allow the claim of the Appellant of the bad-debt written-off amount to Rs. 2,50,00,000 on account of irrecoverable overdue matured debentures only if the Appellant was an NBFC at the time of acquisition of the said debentures. 3. The Learned Comm....
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....the originally filed appeal. Further, that the claim of the assessee before the CIT(A) was that the assessee was a Non Banking Financial Company (NBFC). The Ld. CIT(A) has directed the Assessing officer to allow the claim of the assessee after verifying the assessee's claim that it was a NBFC. However, while giving effect to the order of the CIT(A), the Assessing officer observed that the claim of the assessee of an amount of Rs. 2.50 crores claimed as 'bad debt written off' was verified and it was found that the debentures were inherited by the assessee on account of merger of companies as per the order No. 563 of 2003 dated September 3, 2004 of the Hon'ble High Court, the period during which the assessee was not a NBFC. The NBFC certificate of registration was issued to the assessee company by the Reserve Bank of India on 18.9.2005, hence, the claim of the assessee was not accepted. It has, therefore, been pleaded that the revised grounds taken by the assessee are not admissible at this stage. 4. Before adjudicating on the admissibility or non-admissibility of the additional grounds, we deem it fit to first go through the relevant facts relating to the issues raised before us.....
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.... 138,65 (ii) Office Administrative and other Expenses Repair and Maintenance (other than building and plant and machinery) 1 Advertisement expenses 188 Telephone expenses 60 Travelling and conveyance 253 Vehicle expenses 119 Printing & Stationery expenses 248 Postage and telegrams 487 Profession fee 49 Auditors' remuneration 301 Demat and Custodian Charges 203 Listing fee 105 Amount written off 525 Share transfer agent expenses 383 Directors sitting fee 250 AGM charges 20 Miscellaneous charges 77 32.69 Total expenditure debited to the profit and loss account 171,34 Less: amount written off (direct nexus to the business income) 166,09 Less: Expenses disallowed as per the computation of income Provision for gratuity 230 Provision for leave encashment 133 ESOP 924 1287 Expenditure to be allocated in to taxable....
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.... the CIT(A). Before the Ld. CIT(A), the assessee pleaded that the total expenditure debited to the profit and loss account of the assessee was Rs. 1,97,70,000/-. In the return of income, the assessee itself had disallowed a sum of Rs. 1,07,47,339/- u/s 14A of the Act being proportionate administrative and other expenses attributable to the exempt income. The Assessing Officer was not justified in making further additional disallowance which was equal to the difference of amount of total expenditure booked in profit and loss account and the suo moto disallowance made by the assessee u/s 14A of the Act. That the said disallowance was made by the Assessing officer without proper application of section 14A of the Act. That even the amount of Rs. 39,23,333/- was on account of expenditure incurred in respect of certain specific items such as death gratuity, leave encashment, standard assets etc. was not at all relatable to the earning of the exempt income. It was also pleaded that the assessee had earned a taxable income of Rs. 4,11,43,355/- from business, for earning of which the assessee must have incurred expenditure. The assessee thereafter submitted the details of various expenditur....
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....the assessee has agitated the action of the DCIT (AO) in disallowing the amount of Rs. 1,97,70,000/- u/s 14A of the Act. Though, the assessee, in the original grounds of appeal agitated the confirmation of addition of Rs. 50,99,328/-, that is of the amount which was over and above the suo moto disallowance of Rs. 1,07,47,339/- offered by the assessee in its return of income, however, at this stage, the Ld. counsel for the assessee has contended that no disallowance u/s 14A was attracted in this case. He has pleaded that the assessee company is an investment company and that it had made strategic investment in its associate / subsidiary companies as part of its business activity and to have control over them. The investments were not made for the purpose of earning of dividend or tax exempt income, rather, the dividend income earned by the assessee was incidental to the above business strategy of the assessee, therefore, the addition made by the lower authorities u/s 14A was not justified. He, to stress upon the point that in case of strategic investment made by a company in its subsidiary company, out of its business activity or out of the business exigencies such as to have contro....
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....became available on account of change of circumstances or law, but with additional grounds which were available when the return was filed. The relevant part of the order of the Tribunal in the case of "Pandoo P. Naig" for the purpose of reference is reproduced as under: "19. Now coming to the point, whether, the claim put by the assessee Shri Pandoo P. Naig by way of additional ground before the Ld. CIT(A) regarding the deletion of addition of Rs. 4 crore offered during the survey action and thereby offered in the return of income can be allowed at this stage? The Ld. Counsel for the assessee in this respect has placed reliance on the decision of the Hon'ble Supreme Court in the case of "National Thermal Power Co. Ltd." vs. CIT" 229 ITR 383. The facts before the Hon'ble Supreme Court were that the assessee in that case offered the interest amount for taxation and the assessment was completed on that basis. Before the Ld. CIT(A), the assessee though had taken a number of grounds of appeal, however, the inclusion of the said amount of interest was not challenged. The inclusion of the said amount of interest was not objected to even in the grounds of appeal as origin....
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....Tribunal, the appellate authority can consider the proceedings before it and the material on record before it for the purpose of determining the correct tax liability of the assessee. The appellate authorities, of course, cannot travel beyond the proceedings and examine new source of income, for that purpose other separate remedies are provided to the department under the Income Tax Act. The Hon'ble full bench of the Bombay High Court observed that apart from the above, there was nothing in section 254 or section 251 which would indicate that the appellate authorities are confined to considering only the objections raised before them or allowed to be raised before them either by the assessee or by the department, as the case may be. They can consider the entire proceedings to determine the tax liability of the assessee. The Hon'ble Bombay High Court in the case of "CIT vs. Pruthvi Brokers and Shareholders Pvt. Ltd." (2012) 349 ITR 336 (Bom.) has observed that the assessee is entitled to raise not merely additional legal submissions before the appellate authorities, but is also entitled to raise additional clams before them. The appellate authorities have jurisdiction to de....
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....s further observed that the decision of the Hon'ble Supreme Court in the case of 'Goetze (India) Limited v. CIT' (2006) 157 Taxman 1, relating to the restriction of making the claim through a revised return was limited to the powers of the Assessing Authority and the said judgment does not impinge on the power or negate the powers of the appellate authorities to entertain such claim by way of additional ground. Even otherwise, the Ld. CIT(A) ought to have considered the claim of the assessee in exercise of his appellate jurisdiction under section 250 of the Act. Moreover, if the assessee is, otherwise, entitled to a claim of deduction but due to his ignorance or for some other reason could not claim the same in the return of income, but has raised his claim before the appellate authority, the appellate authority should have looked into the same. The assessee cannot be burdened with the taxes which he otherwise is not liable to pay under the law. Even a duty has also been cast upon the Income Tax Authorities to charge the legitimate tax from the tax payers. They are not there to punish the tax payers for their bonafide mistakes. In view of our above observations, it is held that the....
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.... Act but also at Commissioner level under section 263 of the Act to reassess the income, in case of under assessment of income of the assessee in assessment proceedings carried out u/s 143 of the Act. Such powers of reassessment are also available to income tax authorities u/s 153A and 153C in case of detection of undisclosed income in search proceedings carried out u/s 132 of the Act. Even the assessee can be burdened with harsh penalty, in case he is found to have furnished inaccurate particulars of income or concealed his income. In such a situation, if the assessee has mistakenly offered certain amount for taxation, which he is legally not supposed to offer, in our view, he can also raise such an additional claim before the appellate authorities. The assessee cannot be put to a disadvantageous position because of mere technicalities. The assessee cannot be burdened with the taxes which he otherwise is not liable to pay under the law. Even a duty has also been cast upon the Income Tax Authorities to charge the legitimate tax from the tax payers. They are not there to punish the tax payers for their bonafide mistakes. In view of our above observations and in the light of the p....
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.... the assessee furnish an objective basis for the Assessing Officer to arrive at a satisfaction in regard to the correctness of the claim of the assessee, there would be no warrant for taking recourse to the method prescribed by the rules. An objective satisfaction contemplates a notice to the assessee, an opportunity to the assessee to place on record all the relevant facts including his accounts and in the event that he comes to the conclusion that he is not satisfied with the claim of the assessee. However, as observed above, in the case in hand, the Assessing officer has not followed the guidelines of objective satisfaction as laid down by the Hon'ble Bombay High Court in the case of 'Godrej & Boyce' (supra) while making the disallowance. He without recording any reasoning for his dissatisfaction with regard to the working/claim of the assessee, straightway applied Rule 8D against the mandate of the provisions of section 14A of the Income Tax Act. The Id. CIT(A) also ignored the mandate of the provisions of section 14A, while giving part relief to the assessee on a different footing. Since we have already restored the matter to the AO on this issue, we direct that the AO wil....
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....al Estate, J.P. Road, Andheri (W),Mumbai 400038 AAACM6864B 4 Atiiupa Investment Pvt. Lid. 124, Andheri Universal Industrial Instate, J.P. Road, Andheri (w) f\V), Miunbai- 400 058 AAACA8328C 5 Zafonic Finlease & Investments Pvt. Ltd. 1 24, Andheri Universal Industrial Estate, J.P. Rood, Andheri {W}, Mumbai-400058 AAACZ0310K 6 Ottoman Fin!ease & Investments Pvt. Lid. 21, Sethi Mansion, Kuintha Street, Bollard Estate, Mumbai 400 038 AAAC01161F 3. As per the provisions of The Companies Act 1956, a private limited company is not allowed to issue a prospectus as it cannot invite the public for subscription. In view of the fact that all the OCDs were issued by private limited companies there would be no requirement of a prospectus in such cases. The OCDs are issued by private limited companies usually on a private placement basis. 4. As the OCDs were issued long back and since matured became a non performing debt, provided for and written off, the copies of certificates are not readily traceable. However, the matured debentures regularly appeared in balance sheet of the company and details ate enclosed herewith. 5. As the a....
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....the assessee is allowable under section 36(l)(vii) of the Act. For your ready reference and records, we enclose (he copy of the decision of the apex court in the case of TRF. Ltd as CJT (2O10] 333 JTR 397 (SC) for your ready reference and records. 9. The matured OCDs were the recoverable debts of the assessee company in its regular course of business as Non Banking Finance Company. The income on these debts has been offered for taxation as staled above. As per the provisions of the Act, if any debts or part of debt is not recoverable, then the assessee is entitled to claim the same, as bad debts under section 36(1)(vii) of the Act. Since the OCDs are not capital assets of the assessee, but its business debts in the course of its business as non banking finance company, the question of treating the bad debts as capital loss does not arise. 10. Copy of the NBFC registration Certificate issued by RBI to the assessee company is enclosed herewith,." 15. The Ld. Assessing officer, however, did not accept the above explanation given by the assessee observing as under:- "6.3 The reply of the assessee has been considered but found not acceptable. The a....
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....he appellant before the AO as well as during appeal proceedings that the appellant was a NBFC company at the time of investment in the debentures in question. The AO has mainly made this addition on the ground that the NBFC certificate of the appellant company was issued to the appellant in June 2007, whereas the convertible debentures which have been written off during the year under consideration were issued prior to F.Y.2006-07. The appellant on the other hand has refuted this observation of the AO and claimed that the AO has misunderstood the NBFC certificate of June 2007 because it was only a renewal of old certificate and the appellant is an old NBFC company from the time when this investment in debenture was made. After considering the rival submission, I agree with the contention of the appellant in principle to the extent that since the business of the appellant company is financing, it being a NBFC company, it is entitled to claim the write off of bad debt of investment such as convertible debentures after the same have become a nonperforming asset (NPA). Accordingly, the AO is directed to allow the claim of the appellant, but only after verifying contention of the appell....
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....been written off as irrecoverable in the accounts of the assessee. Relying upon the order delivered by the Hon'ble Madras High Court in the case of Micromax Systems Pvt. Ltd. (277 ITR 409), he held that the assessee had not written off the debts in his books of accounts. Finally, he disallowed the entire amount of reversed interest (Rs. 55.05 lakhs) and added it to the total income of the assessee. 7. Assessee preferred an appeal before the FAA. After considering the submissions of the assessee and the arguments of the AO, he held that the assessee had not stated certain facts correctly in the assessment proceedings, that OCDs were purchased by Jindal Vijaynagar Steel Limited in the year 1994, that OCDs were to be converted into shares or to be redeemed after the expiry of 7 years from the date of allotment, that these OCDs were allotted to the appellant on the merger of M/s JIndal Vijaynagar Steel Limited in financial year 2004-05, that these OCDs were matured in the year 2001, that these assets were classified as mature debentures by the Jindal Vijaynagar Steel Limited, that the claim of the assessee about acquiring the OCDs in the year 2003-04, 2004-05 & 2005-06 was not....
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....om the file can be summarised as under :- i).Pursuant to a Scheme of Arrangement and Amalgamation between Jindal Iron & Steel Ltd (JISL) and Jindal Vijayanagar Steel Ltd (JVSL) Investment Portfolio consisting of Investments and Loans & Advances had been transferred to the Company and the Steel business was merged in Jindal Vijayanagar Steel Ltd with effect from 1stApril, 2003. ii).Transferred investments included 16% Optionally Convertible Debentures (OCD) amounting to Rs,2,50,00,000/- The said OCDs had matured in 2001 and were classified as Matured Debentures under the head 'Loans and Advances'. iii).Interest on the aforesaid OCDs for FY 2003-04 and for FY 2004-05amounting to Rs. 23, 85,000/- and Rs. 23,72,700/- respectively was duly provided for by the appellant company and the same was offered for taxation in relevant AYs. iv).On 30-06-2005, an amount of Rs. 7,47,944/-, accrued as interest on the said OCDs for the period from 01-042005 to 30-06-2005, was provided in the books of accounts-thereby taking the total interest accrued to Rs. 55,05,644/-. v).Assessee company was declared a non-banking financial institute in the year under co....
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.... During the year under consideration, the assessee company has written of these NPAs in the books and claimed as bad debts written off in the return of income. The interest on the aforesaid OCDs for financial year 2003-04 and financial year 2004-05 was provided for on accrual basis and the same were offered for taxation during the relevant assessment year. The assessee company was declared Non-banking Financial Institution in the assessment year 2006-07. The assessee company had written off all the aforesaid interest dues as irrecoverable and debited the same to the profit and loss account during the assessment year 2006-07. The Tribunal observed that the assessee had fulfilled all the requirements of Clause (vii) of sub clause (1) of section 36 of the Act. The Tribunal observed that since the assessee had offered the said amount of interest as income which was subsequently written off, because of its non-recovery and that the same was in accordance with the prescribed guidelines. Now the question before us is that, even if, the said interest has been allowed to be written off, whether the said OCDs are allowable for deduction as bad debts written off. The relevant clause (vii) of ....
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....investments of the predecessor holder and, hence, it cannot be said that the same were business assets of the predecessor holder or that the said OCDs has been taken into account in computing the income of the predecessor holder of any previous year. Hence, it cannot be said that the assessee has acquired any right of the predecessor company to claim deduction on account of bad debts written off in respect of such write off of OCDs, because such rights were not available even to predecessor holder of these OCDs. Nor the said OCDs represents money lent in the ordinary course of business of money lending carried on by the assessee. Admittedly, the assessee was not a NBFC at the time of acquiring the said OCDs, hence, it cannot be said that the OCDs were part of the money lent in the ordinary course of business, though later on the assessee company had offered interest on such OCDs as its business income. The said OCDs neither represent the debt or part thereof which has been taken into account in computing the income of the assessee in any earlier previous year nor the same represents the money lent in the ordinary course of business of money lending carried on by the assessee. No....