TaxTMI 
TaxTMI 
2020 (10) TMI 528
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....e against the order of the Deputy Commissioner of income tax, Circle - 11 (1), New Delhi passed on 27th of December 2007 u/s 143 (3) of the income tax act 1961 was partly allowed. Therefore, both the parties are in appeal before us. 02. Assessee has preferred following grounds of appeal 1) That the Commissioner of income tax (appeals) erred on facts and in law in upholding the action of the assessing officer in not allowing depreciation amounting to Rs. 73,130,008/- claimed by the appellant in respect of the assessee given on lease. 2) That the Commissioner of income tax (appeals) erred on facts and in law in simply following the order for assessment year 2004 - 05, holding the lease transaction undertaken by the appellant to be a financing transaction. 3) Without prejudice to ground of appeal number 1, that in case the lease transaction undertaken by the appellant was held to be merely a financing transaction, then the assessing officer erred in bringing to tax the entire lease rent received and offered for tax by the appellant in the return of income. 4) That the assessing officer/Commissioner of income tax (appeals) failed to appreciate tha....
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....able business income was determined at Rs. nil. 06. Assessee aggrieved with the order of the learned assessing officer preferred an appeal before the learned CIT - A who passed an order partly allowing the appeal of the assessee. Therefore, for the reason that certain disallowances have been deleted, assessing officer is in appeal and for the addition/disallowance is confirmed by the CIT - A, assessee is in appeal. 07. We first take up the appeal of the learned assessing officer. This appeal in ITA number 3207/del/2011 as the first ground of appeal that the learned Commissioner of income tax (appeals) has erred in restricting the addition of Rs. 8,577,000 on account of disallowance u/s 14 A of the income tax act. This ground is also related to ground number 3 of the appeal of the assessee. 08. Brief facts shows that assessee has earned dividend income of Rs. 222,235,283 which is claimed as exempt u/s 10 (34) of the act. The learned assessing officer as per questionnaire dated 10 October 2007 asked the assessee to justify the non-disallowance of expenditure incurred for earning exempt income as per provisions of Section 14 A of the act. As per letter dated 14th 11 2007, ass....
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....ture, it was submitted that for assessment year 2006 - 07 the learned Commissioner of income tax appeal has restricted the disallowance to Rs. 10 lakhs, therefore, the above addition on account of administrative expenses cannot be made. 10. The learned CIT - A, he deleted the disallowance on account of interest expenditure however sustained the disallowance of administrative expenditure of Rs. 8,577,000. Therefore, both the parties are in appeal before us. 11. The learned authorised representative submitted as Under a. The shares were held by Appellant Assessee as stock-in-trade and as such no disallowance under section 14A of the IT Act was called for. b. Investments in shares were made out of interest free funds hence interest cost cannot be attributed as expenditure in relation to earning of dividend income. c. No cogent reasons were given by the Respondent Revenue for rejecting suo-moto disallowance made by the Appellant Assessee. Also, the reasons as given by the Respondent Revenue with regard to double benefit on account of loss on sale of shares/bonds being exempt due to the transaction of dividend stripping (reduction in redemption value due....
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....isallowance of interest has rightly been made by the learned assessing officer. With respect to the administrative expenditure, he submitted that assessee did not give any information about any expenditure incurred for earning such securities for earning dividend. He submitted that it is not possible for the assessee to earn such huge dividend without incurring any expenditure for earning that dividend. He therefore submitted that the learned assessing officer has rightly disallowed the proportionate sum. He further stated that the ratio adopted by the learned assessing officer is also not disputed by the assessee. He further stated that in past assessment year as well as in the subsequent assessment years the assessee has made disallowance u/s 14 A of the act on its own; therefore, there is no reason that there should not be any disallowance for this assessment year. 13. We have carefully considered the rival contention and perused the orders of the lower authorities. Undoubtedly assessee has earned the dividend income which is exempt from tax u/s 10 (34) of the act of Rs. 22.22 crore . However before the learned CIT - A assessee has submitted that it has huge interest free fun....
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....allowed. 15. Ground number 2 of the appeal of AO is against the deletion of addition of Rs. 72,317,718 on account of interest on bonds disallowed u/s 43B of the act. The learned assessing officer observed that assessee has claimed deduction u/s 43B of the act to the extent of Rs. 263,479,074/- the assessee was asked to justify the claim of deduction. The assessee furnished details from which it was observed that a sum of Rs. 72,317,718 is the amount of interest on PP bonds payable to unit trust of India. This amount has been adjusted on reconciliation in the month of September 2005. AO found that assessee has not made any payment in respect of the interest on these bonds but has been debited to the profit and loss account. Therefore, he applied the provisions of Section 43B of the act and disallowed the above sum. 16. Before the learned CIT - A assessee submitted that merely because a clarification is inserted as per the finance act 2006 with retrospective effect from 1 April 1989 that in case of settlement made by way of adjustment, provision of Section 43B applies, cannot lead to disallowance in the hands of the assessee. Assessee also submitted that there is no conversion ....
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....pplicable which says that deduction of any sum, being interest payable Under clause (d) of Section 43B, shall be allowed, if such interest has been actually paid and any interest referred to in that clause which has been converted into a loan or borrowing shall not be deemed to have been actually paid. Therefore, the provision of the law amended retrospectively clearly provides that when such interest not actually paid but is converted into loan or borrowing it cannot be considered as actually paid for the purpose of its allowablity u/s 43B of the act. Even otherwise the issue is squarely covered against the assessee by the decision of the honourable Supreme Court in case of Commissioner of income tax versus Gujarat Cypromet Ltd [2019] 103 taxmann.com 346 (SC)/[2019] 262 Taxman 93 (SC)/[2019] 412 ITR 397 (SC) which is rendered with respect to assessment year 2001 - 02. Therefore, ground number 2 of the appeal of assessing officer is allowed. 21. In the result ITA number 3207/del/2011 filed by the learned assessing officer is partly allowed. 22. Now we come to the appeal of the assessee. Ground numbers. 1 and 1.1 are with respect to the disallowance confirmed by the learned CI....
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....Ltd versus Commissioner of income tax 255 ITR 273 stating that the AO has only the power of examining whether the books of accounts certified by the authorities Under the Companies act and having been properly maintained in accordance with the companies act. Therefore, assessee submitted that AO does not have any authority to adjust the book profit on this account. The learned assessing officer rejected the contentions of the assessee and held that the provision for doubtful debts and advances is nothing but the reserve required to be created Under the Companies act. He held that as per clause (b) of explanation to subsection (2) of Section 115JB of the act the amount carried to any reserve by whatever name called, is required to be added back for the purposes of the book profit Under the provisions of 115 JB of the act. Accordingly, he adjusted the book profit of Rs. 790.33 crores on account of provisions for bad and doubtful debts. 29. The assessee carried the above issue before the learned CIT - A, he upheld the action of the learned assessing officer. 30. The learned authorised representative submitted before us as under:- 1. In the instant year, the Appellant As....
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....ck to the book profit as per explanation (1) of Section 115JB of The Income Tax Act. The amount of provision for bad and doubtful debts is definitely a diminution in the value of the asset i.e. book debts, therefore, it is also required to be added back to the book profit. It may also be a reserve created by making a provision out of bad and doubtful debts for the future losses that may arise out of debts. In view of this, we dismiss ground number 4 of the appeal of the assessee. 33. Accordingly, ITA number 3443/del/2011 filed by the assessee for assessment year 2005 - 06 is partly allowed. 34. Accordingly, for assessment year 2005 - 06 appeal of the assessee and appeal of the revenue are partly allowed. ITA number 2199/del/2011 (by AO) Assessment year 2006 - 07 35. This appeal is filed by the learned assessing officer against the order of the learned Commissioner of income tax appeals - XIII, New Delhi dated 23rd of February 2011 wherein the appeal filed by the assessee against the order of the learned assessing officer passed u/s 143 (3) of the income tax act 1961 dated 30 September 2008, was partly allowed. 36. The learned assessing officer has raised the follo....
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....that appeal, we dismiss ground number 1 of the appeal of the AO. 41. Ground number 2 of the appeal of the assessing officer is similar to ground number 1 of the appeal in assessment year 2005 - 06. Both the parties submitted that facts are similar except the change in the amount of exempt income. They also submitted that their arguments are also the same, therefore, as we upheld the addition out of the administrative expenses of only Rs. 10 lakhs, the learned departmental representative could not show us any reason why we should deviate from the same, we uphold the order of the learned CIT - A, who deleted the disallowance u/s 14 A with respect to the interest expenditure and upheld the disallowance to the extent of Rs. 10 lakhs out of the administrative expenses. Accordingly, ground number 2 of the appeal of the AO is dismissed. 42. In the result ITA number 2199/del/2011 filed by the learned assessing officer for assessment year 2006 - 07 is dismissed. ITA number 1631/del/2011 (by AO) Assessment year 2007 - 08 43. This appeal is preferred by the learned Deputy Commissioner of income tax, Circle 11 (1), New Delhi for assessment year 2007 - 08 against the order of the....
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....agreed by both the parties, we dismiss ground number 1 of the appeal of the AO. 47. Ground number 2 is against the disallowance deleted u/s 14 A of the act. The fact shows that assessee has earned dividend income of Rs. 256,316,814. It has also earned interest income from tax-free bonds of Rs. 140,33,171/-. The assessee was questioned by the AO for disallowance u/s 14 A, which assessee submitted that in earlier years the learned Commissioner of income tax appeals has restricted the disallowance for assessment year 98 - 99 only two Rs. 2 lakhs out of administrative expenses. The learned assessing officer rejected the contentions of the assessee and found that salaries and benefits, miscellaneous expenses and cost of borrowings amounting to RsRs. 785 crores is required to be allocated between the exempt income such as dividend in proportion to the total receipts. He therefore word out the disallowance of Rs. 102,097,461. 48. On appeal before the learned Commissioner of income tax (appeals he upheld the disallowance out of the expenditure to the extent of Rs. 10 lakhs, deleted the disallowance on account of interest expenditure for the reason that assessee has huge interest free....
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....of SEBI and RBI were granted on 23rd March and 29th of March 2007 respectively. According to the share purchase agreement all the agreements conditions were required to be fulfilled by 26th of March 2007. Due to non-availability of requisite approvals the documentation could not have been possible by 15th of March 2007 which was the last date for payment of fourth installment of advance tax. Due to this whatever profit assessee has earned, it short paid the advance tax.. In the case of the assessee the sale proceeds of the sale of shares was received in the month of April after 31st of March 2007. This resulted into levy of interest u/s 234C of the act amounting to Rs. 49,544,909/-. 53. The assessee challenged the same before the learned Commissioner of income tax appeals. He passed an order as per his finding in paragraph number 6.5 wherein he held that after considering the submissions made by the assessee describing the peculiar nature and events which could not have been envisaged or anticipated in advance leading to shortfall in the position of advance tax on the part of the assessee he decided the issue in favour of the assessee. 54. The learned departmental representat....
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....er of shares, the documentation could not have been possible by 15th March 2007 (deadline for payment of advance tax as stipulated in section 234C of the IT Act). The documentation with respect to transfer of shares was completed on 31/03/2007 and thereafter, the respondent assessee made up for the deficiency in payments on 31st March 2007. 6. It is submitted that action of Ld. AO, rightly deleted by CIT(A), of penalizing the respondent assessee by charging interest for non-payment of advance tax is bad in law. 7. It is a settled position of law that interpretation or construction of a statute is not a mechanical task. The legislative intent behind a particular provision is to be seen. Fairness, equity and justice demands that statutes should be interpreted with regards to realities of the situation. A construction, which reduces the statute to a futility, has to be avoided. [Union of India v. Filip Tiago De Gama Of Vedem Vasco Dee Gama, AIR 1990 SC 981, Maxwell on Statutes (11th Edition) page 221, Craies on Statutes (7th edition) page 95). 8. It is submitted that uncertainties about income which are not mentioned as exception in Section 234C of the IT Ac....
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....of the income tax act 04 on the facts and circumstances of the case and in law, the learned CIT - A has erred in allowing the deduction of Rs. 7,999,069/- being the fringe benefit tax in competition of book profits u/s 115JB of the act 60. Assessee has raised following grounds of appeal 01 that the Commissioner of income tax (appeals) erred on facts and in law in upholding the disallowance to the extent of Rs. 4.40 crores u/s 14 A read with rule 8D for expenditure incurred in relation to exempt income 02 That on the facts and circumstances of the case the learned CIT - A erred in overlooking the amount of disallowance u/s 14 A made by appellant, determined based on its consistent method of accounting and determination of such expenditure. 03 That on the facts and circumstances of the case, the learned CIT - A or to have noted that the amount disallowed by the appellant u/s 14 AO is after due consideration of the expenditure incurred in earning more taxable non-taxable income from its books of accounts and hence routine application of rule 8D overlooking to the method of accounting of such expenditure is not called for. 04 That the lea....
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....arned assessing officer. 64. Coming to the first ground of appeal with respect to the disallowance of depreciation on plant and machinery leased to various authorities, both the parties confirmed that identical issue has been decided in case of the assessee for assessment year 1999 2000 and 2000 - 2001. Their arguments are same as the facts of the case are also similar. On careful consideration of the rival submissions and the facts on record, in absence of any change in those facts compared to the facts of the case for assessment year 1999 - 2000 2000 - 2001, for similar reasons as given in ITA number 1200 and 1201/del/2005 of even date, we confirm the action of the learned CIT - A and dismiss ground number 1 of the appeal of the AO. 65. Ground number 2 and 3 relates to the computation of disallowance u/s 14 A of the act. The assessee has earned dividend income of Rs. 238,145,137 and income from tax free bonds of Rs. 140,33,171 which is claimed as exempt u/s 10 (34) and 10 (15) of the income tax act. Therefore the assessee was questioned about the disallowance u/s 14 A of the act. The assessee submitted a general reply. However the learned assessing officer rejected the cont....
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....sing officer, the provisions of section 14A(2) and rule 8D would become applicable. Same conclusion was also reached in the decision of High Court of Delhi in the case of CIT vs. Taikisha Engineering India Ltd [2015] 54 taxmann.com 109 (Delhi). However, in the assessment order no such satisfaction having reference to accounts of the Appellant Assessee was recorded by the Respondent Revenue for rejecting suo-moto disallowance of Rs. 10,00,000 made by the Appellant Assessee. b. Reference in this regard can also be made to the decision of the decision of High Court of Delhi in the case of Maxopp Investment Ltd. vs. CIT [2011] 15 Taxmann.com 390 (Delhi) wherein it was held that only on recording of such satisfaction, the Assessing officer gets jurisdiction to determine the amount of expenditure under section 14A of the IT Act read with Rule 8D of the Rules. The Court also categorically mentioned that while rejecting claim of suo-moto disallowance made by the assessee, the assessing officer would have to indicate cogent reasons. c. A perusal of reasons of passive investment, well co-ordinated management decisions, telephone expenses, follow up being embedded in indirec....
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....pping (reduction in redemption value due to declaration of dividend) was wrong in the light of the decision of Apex Court in the case of CIT vs Walfort Share & Stock Brokers (P.) Ltd. [2010] 192 Taxman 211 (SC), the loss on saleof units in a dividend stripping transaction, cannot be considered as an "expenditure‟ for disallowance under section 14A of the IT Act. Further, it is submitted that there was no loss on sale of shares/bonds which was claimed as exempt during the year under consideration and no contrary finding to that effect was given by the Respondent Revenue. Further, income/loss from sale of shares in assisted concerns was consistently shown as business income/loss by the Appellant Assessee. iv. Reliance by Respondent Revenue on United General Trust case was incorrecton the ground that though the question framed contained a reference to "proportionate management expenses‟ but the controversy was that whether deduction is allowable from gross dividend or net dividend under section 80M of the IT Act and section 14A of the IT Act does not deal with this issue. v. No actual expenditure was incurred by the Appellant Assesseeto earn the dividend ....
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.... the disallowance shown by the assessee on its own of Rs. 2 lakhs is incorrect. The satisfaction of the assessing officer is mandatory in terms of the provisions of Section 14 A (2) of the income tax act. The satisfaction of the Commissioner of income tax appeals cannot be replaced for substituted for the satisfaction of the learned assessing officer. The honourable Supreme Court in Maxoop investments Ltd versus CIT [ 2018] 91 taxmann.com 154 (SC)/[2018] 254 Taxman 325 (SC)/[2018] 402 ITR 640 (SC)/[2018] 301 CTR 489 (SC) has held that having regard to the language of section 14A(2), read with rule 8D of the Rules, it is also made clear that before applying the theory of apportionment, the Assessing Officer needs to record satisfaction that having regard to the kind of the assessee, suo motu disallowance under section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the Assessing Officer was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, nature of loan taken by the assessee for purchasing the shares/making the in....
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.... of the appeal of the AO we have held that assessing officer has not recorded proper satisfaction in terms of provisions of subsection (2) of the act of Section 14 A of the act and therefore the disallowance under that Section cannot be made. In view of our that finding, the ground number 1 & 2 of the appeal of the assessee in ITA number 1984/Del/2012 are allowed. 73. Accordingly ITA number 1984/del/2012 filed by the assessee is allowed. 74. In the result ITA number 2062/del/2012 filed by the learned assessing officer is partly allowed and appeal of the assessee in ITA number 1984/del/2012 for assessment year 2008 - 09 is allowed. ITA number 2473/del/2014 (by Assessee) and ITA number 5381/del/2012 (by assessee) Assessment year 2009 - 10 75. These are the 2 appeals filed by the assessee the same assessment year. ITA number 2473/del/2014 is filed against the order of Commissioner of Income Tax (Appeals) -XVIII, New Delhi dated 29th of January 2014 passed in appeal filed by the assessee against the order of the Deputy Commissioner Of Income Tax, Circle - 11 (1), New Delhi for assessment year 2009 - 10. Briefly stated the facts show that the assessee filed its retu....
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.... total income assessee has disallowed a sum of Rs. 10 lakhs u/s 14 A of the income tax act. The learned assessing officer questioned the assessee with respect to the disallowance u/s 14 A of the act. Assessee submitted its reply on 25th /11/ 2010 giving the brief history of such disallowances upheld by the learned CIT - A. The learned assessing officer rejected the contentions of the assessee, reproduced the provisions of Section 14 A of the act and thereafter proceeded to compute the disallowance u/s 14 A with respect to the administrative expenditure by applying a multiplying factor of 0.5% thereby computing the total disallowance of Rs. 175,73,432/-. As assessee has disallowed a sum of Rs. 10 lakhs on its own, the addition of Rs. 165,73,432/- was made. Assessee challenged the same before the learned CIT - A. He as per paragraph number 9.1 of his order held that AO has correctly recorded the finding and therefore the disallowance was confirmed. 80. Both the parties submitted that the facts in this case are identical to the facts in the case of assessee for assessment year 2008 - 09 wherein the disallowance u/s 14 A was partially deleted by the learned CIT - A. They submitted t....
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.... The revised return was processed u/s 143 (1) on 29th of July 2011 wherein the refund was determined of the above sum and interest u/s 244A of Rs. 139,00,935/- . While calculating the interest the learned assessing officer allowed the interest for the period 1 April 2011 to July 31, 2011. The claim of the assessee is that the amount of refund and its interest should have been granted at the rate of 0.5% for a month from first day of April of assessment year to the date of actual refund. 87. The learned CIT - A rejected the appeal of the assessee holding that the delay is on part of the appellant and therefore in terms of provisions of Section 244A (2), the learned assessing officer has rightly calculated the refund. Therefore, assessee is aggrieved in appeal before us. 88. Before us assessee submitted as Under:- i. The Appellant had filed return of income on 30 September 2009 claiming a NIL refund. Thereafter, the Appellant filed a revised return on 30th March, 2011 claiming a refund of Rs. 70,61,49,685/- and the same was assessed u/s 143(1) at Rs. 70,89,47,660/- comprising of prepaid taxes Rs. 69,50,46,725/- and interest u/s 244A at Rs. 1,39,00,935/-. ii. T....
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....rn filed under section 139(3) is deemed to be a return filed under section 139(1). The provision contained in section 139(3) makes it clear that all the provisions of this Act shall apply to such a return as if it were a return under section 139(1). In view of such a specific provision, there is no reason to exclude the applicability of section 139(5) to a return filed under section 139(3)." vii. Based on the above submission the Appellant assessee humbly submits that the Ld. CIT(A) erred in holding that AO has rightly calculated the interest on refund. The interest on refund amount should be calculated from the date of filing original return and not from the date of filing the revised return. 89. Learned departmental representative heavily supported the order of the learned and CIT - A and submitted that the delay is on account of the assessee as assessee has not claimed refund in the original return of income but same was claimed at Rs. nil and subsequently in the revised return it has claimed that refund. It was submitted that it is not the case of the assessee that in the original return refund was claimed and the certificates were not attached. This is the case whe....