TaxTMI 
TaxTMI 
2020 (11) TMI 809
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....(Appeals), Mumbai [hereinafter in short "Ld.CIT(A)"] for the A.Ys. 2007-08 to 2009-10 and A.Y. 2011-12 to 2013-14 and appeal by the assessee for the A.Y. 2010-11. 2. First we take up the appeal for the A.Y. 2007-08 in ITA.No. 5775/Mum/2011 (assessee's appeal) and ITA.No. 6860/Mum/2011 (revenue's appeal). ITA.No. 5775/Mum/2011 (A.Y. 2007-08) (Assessee's Appeal) 3. Assessee in its appeal has raised following grounds in its appeal: - "1) The Commissioner of Income Tax (Appeals) [CIT(A)] erred in confirming the disallowance made by Assessing Officer (AO) for depreciation claim of Rs..375,000/- on intangible assets - non-compete fees of Rs..20,00,000 under the non-compete agreements. 2) The CIT(A) erred in restricting disallowance u/s 14A of the Act to 5% of exempt income (i.e. 5% of Rs..11,05,15,050/-) which works out to Rs..55,25,752/- lakhs and not accepting the disallowance offered by the appellant u/s 14A of Rs..37,66,085/- (being Rs..19,87,289/- towards administrative expenses and Rs..17,78,796/- towards interest expenditure). 3) The CIT(A) erred in confirming the disallowance of Rs..147,635/- (i.e. 1/5th of Rs..738,189/-) incurred towards prefe....
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....ing aside the order of the Ld.CIT(A) and directed the Assessing Officer to allow depreciation on intangible assets i.e. non-compete fees. 7. Ld. DR fairly submitted that the issue has been decided in favour of the assessee by this Tribunal for the A.Y. 2006-07. 8. We have heard the rival submissions, perused the orders of the authorities below and the order of the Coordinate Bench. The Tribunal while disposing off the appeal of the assessee for the A.Y. 2006-07 in ITA.No.1163/Mum/2011 dated 27.08.2018 allowed the claim for depreciation on intangible assets i.e. non-compete fees observing as under: - "7. We have heard the rival submissions of both the parties and perused the material on record including the decisions cited by the Ld. A.R. We find that in the present case the assessee acquired 78% of the interest in a firm known as M/s. Landmark which was engaged in the business of retailing and publishing the books and magazines. The assessee paid Rs. 10 lakh each to two partners vide two separate agreements dated 30.08.2005 as non compete fee for not carrying on or competing with the firm for 5 years from the date of agreement. The assessee claims that the s....
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....and Rs.17,78,796/- towards interest. The Assessing Officer asked the assessee to explain why proportionate expenditure should not be disallowed on exempt income as per Rule 8D r.w.s. 14A of the Act. 12. Assessee vide letter dated 06.10.2009 submitted its reply as under: "1. As per Annexure X to the tax audit report and statement no. 16 to the return it had itself worked out the disallowance by a scientific method based on facts as follows: a. The Investment Committee of Directors: The Committee meets from time to time to review the investments, decides the asset allocation and investments to be purchased and sold. The sitting fees paid to the Committee are included in expenses pertaining to investment activity. b. The company has employed one investment manager to take day-to-day decisions regarding purchase and sale of investment as per the guidelines issued by the investment committee. The salary of investment manager is included in expenses pertaining to investment activity. c. 10% of salary of head of accounts was allocated to investment activity. d. All other administrative expenses consisting of office rent, electricity, telepho....
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....s i.e. interest bearing funds - Investments made in mutual funds after 1 July 2005 have been considered to have been made out of proceeds of the debenture issue. - Mutual funds amounting Rs..62,11,05,732 have yielded exempt income during the year under consideration (these investments were acquired on or after 1 July 2005, and continued to be held during the year under consideration) - 55.56% of such mutual fund investments i.e. INR 34,50,86,345 have been considered as invested out of debenture issue proceeds - Interest @ 2% (i.e. interest cost for the year as a percentage of the total debentures outstanding as at end of the year) has been computed on the amount of INR 34,50,86,345 for the proportionate number of days for which the amount remained invested in the mutual funds. 16. Referring to Page No. 114 of the Paper Book Learned Counsel for the assessee submitted that Administrative expenses of Rs.19,87,796/-considered for disallowance u/s. 14A have been computed based on a percentage of operating expenses. The detailed working showing the computation of administrative expense is submitted in the paper book. Referring to Page Nos. 121 an....
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....by the assessee should be made. Reliance was placed on the decision of the Hon'ble Supreme Court in the case of Sintex Industries Ltd., [93 taxmann.com 24] and HDFC Bank Ltd., [67 taxmann.com 42 (Bom)]. 20. Ld. DR vehemently supported the orders of the authorities below. 21. We have heard the rival submissions, perused the orders of the authorities below. We observe that the assessee made suomoto disallowance of Rs..37,66,085/- being the expenses attributable for earning exempt income and a detailed working was also furnished along with the computation of income which the Ld. Assessing Officer also accepted this position. However, rejecting the working of the assessee Ld. Assessing Officer invoking Rule 8D of I.T. Rules and computed the disallowance accordingly. Ld.CIT(A) however estimated the disallowance at 5% as a reasonable expense attributable for earning exempt income referring to the decision of the Mumbai Bench of the Tribunal and also noticed that provisions of Rule 8D have no application for the A.Y. 2007-08. On a perusal of the order of the Ld.CIT(A) for the A.Y. 2006-07 dated 19.04.2012 we find that the assessee made suomoto disallowance of Rs..37,29,108/- whe....
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.... of the assessee since made on scientific basis we do not see any reason to reject the computation of disallowance made by the assessee for the year under appeal. Thus, we direct the Assessing Officer to accept the working made for disallowance u/s. 14A by the assessee and restrict the disallowance u/s. 14A to the amount as adopted by the assessee. However, since the assessee had already made suomoto disallowance we direct the Assessing Officer to delete the disallowance made u/s. 14A r.w. Rule 8D of I.T. Rules. This ground is allowed. 23. As the main plea of the assessee is accepted we are not going into the alternative pleas made by the assessee, as such the alternate pleas in grounds are dismissed. 24. Ground Nos. 3 and 4 of grounds of appeal relates to disallowance made U/s. 35D of the Act. 25. Briefly stated the facts are that, the Assessing Officer while completing the assessment noticed that the assessee in its computation of income claimed deduction of Rs..33,31,710/- u/s. 35D of the Act. The Assessing Officer required the assessee to explain as to why claim made u/s. 35D of the Act shall not be disallowed as was made in earlier years. 26. The assessee submitted....
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....rtaking or extension of the new industrial undertaking within the meaning of the provisions of section 35D of the Act. The Assessing Officer further observed that these expenses are also not allowable u/s.37(1) of the Act as these expenses incurred on rights issue is a capital expenditure. On appeal the Ld.CIT(A) sustained the disallowance made by the Assessing Officer. 28. Ld. Counsel for the assessee submits that the assessee is engaged in the business of retailing of readymade garments, other accessories and household items through a chain of retail stores with a popular name as "'Westside", departmental stores in the name of "Star Bazaar". Further, it is submitted that part of the garments sold are manufactured on job-work basis. Learned Counsel for the assessee submitted that the assessee issued equity shares and warrants to its promoters on preferential basis during AY 2007-08. The proceeds of the share issue were to be utilized for setting up of new stores for its retailing business and other purposes of its business. The assessee claimed 1/5th of expenses incurred on such issue under section 35D of the Act. Learned Counsel for the assessee submitted that the Assessin....
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...., (supra) is involved into shipping business and they are conducting shipping operations. Therefore, facts are entirely different and therefore ratio of the said decision cannot be applied. 34. We have heard the rival submissions, perused the orders of the authorities below. In the case of Tolani Bulk Carriers Ltd v. JCIT in ITA.No. 5267 and 5268/Mum/2000 dated 30.08.2005 the Mumbai Bench of the Tribunal considered the issue as to whether the assessee which is engaged in the shipping business is eligible for deduction u/s. 35D of the Act and observed as under: - "6. Briefly stated, the relevant facts are that the assessee company is engaged in the Business of operating ships. The assessee company filed return of income on 29.11.95 wherein there is a sum of Rs..12,93,626/- equivalent to 20% of the total expenditure of Rs..64,68,381/- incurred by the assessee-company in connection with the issue of shares to meet the requirement of funds for the acquisition of new ships was amortized. The return was processed u/s. 143(1). However, the Assessing Officer issued notice u/s. 148 for re-opening the assessment u/s 147 on the ground that amortization of shares issue expenses ....
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....nnot be adopted for the purposes of income tax and for this proposition, he placed reliance on the decision of the Hon'ble jurisdictional High Court in the case of Insight Diagnostic and Cological-Research Institute Pvt. Ltd vs. DCIT as reported in 262 ITR 41. 9. We have considered the rival submissions, material placed on record, judicial decisions cited by them and other applicable legal provisions. It is not in dispute that the assessee incurred expenses for raising additional resources through public issue to acquire new ships-. It is also not in dispute that these expenses are in the nature of capital expenses in view of the decision of the Hon'ble Supreme Court in the case of Brooke Bond India Ltd. (supra). However, but section 35-B of the Act permits the amortization of such expenses if the conditions specified therein are fulfilled. It is also not in doubt the expenses incurred by the assessee fall with the category of expenses which are eligible for amortization. The only question which is required to be considered is whether the assessee-company is a Industrial undertaking or not within the meaning of provisions of Section 35 D of the Act. No doubt the de....
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....mortization of preliminary expenses. Further, the object of the section is for allowance of certain expenses by amortization over a period which are otherwise of capital nature. Therefore, a narrow meaning of the term Industrial Undertaking which prohibits amortization of otherwise eligible expenditure would defeat the very purpose of the provision. There is no dispute regarding the nature of expenses and satisfaction of other conditions of the sections by the assessee. In view of above discussion, we are of the considered opinion that the learned CIT(A) was not justified in confirming the disallowance made by the Assessing Officer in this regard and accordingly we reverse the order of the learned CIT(A) and direct the Assessing Officer to re-compute the income of the assesse after allowing amortization of share issue expenses @ 10% of the total expenses incurred by the assessee, Thus, this ground of the assessee Is accepted." 35. This decision of the Tribunal was appealed before the Hon'ble Bombay High Court by the Revenue in Income Tax Appeal No. 1079 of 2008 and the Hon'ble Bombay High Court by order dated 05.09.2008 dismissed the appeal of the Revenue observing as un....
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....ing'. It has, therefore, become necessary to construe these words. Words used in a statute dealing with matters relating to the general public are presumed to have been used in their popular rather than their narrow, legal or technical sense. Loquitur ut vulgus, that is, according to the common understanding and acceptation of the terms, is the doctrine that should be applied in construing the words used in statutes dealing with matters relating to the public in general. In short, if an 'Act is directed to dealings with matters affecting everybody generally, the words used have the meaning attached to them in the common and ordinary use of language' [Vide Unwin v. Hanson (189) 2 Q.B. 115 (CA), per Lord Esher M.R., at page 119]. That the Income-tax Act is of general application, is beyond dispute. It, therefore, follows that the meaning that should be given to these words 'industrial undertaking' must be the natural meaning. It is all the more so because the Income-tax Act is one consolidating and amending the law relating to income-tax and supertax. (See Rao Bahadur Ravula Subha Rao v. CIT [1956] 30 ITR 163 (SC) at p. 169). ...Undertaking' in common....
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....nt or machinery in such feeding or ancillary activities to carry on the business more efficiently and economically. The feeding activity so carried on for "manufacturing or processing of goods" facilitates efficient and economic management and the effectuation of the purpose of construction. Their Lordships therefore, held that the assessee used new machinery or plant in an industrial undertaking for the purpose of construction or production of an article or thing and such article or thing is not specified in the Eleventh Schedule and so, the assessee is entitled to relief under Section 32A. (c) The Supreme Court decision referred to above was concerned with the term "Industry" and the "Undertaking" as appearing in Industrial Disputes Act and in that context it held as under: 34. So, the long and short of it is, what is an industry? Section 2(;) defines it: industry" means any business, trade undertaking, manufacture or calling of employers and includes any calling, service, employment, handicraft, or industrial occupation or avocation of workmen. Let us put it plain. The canons of construction are trite that we must read the statute as a whole t....
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....g' must be read down to conform to the restrictive characteristic shared by the society of words before and after. Nobody will torture 'undertaking' in Section 2(;) to mean meditation or musheria which are spiritual and aesthetic undertakings. Wide meanings must fall in line and discordance must be excluded from a sound system. From Banerjee (AIR 1953 SC 58) to Safdar Jung (AIR 1970 SC 1407) and beyond, this limited criterion has passed muster and we see no reason, after all the marathon of argument, to shift from this position. 38. Likewise, an 'industry' cannot exist without co-operative endeavour between employer and employee. No employer, no industry; - no as a dogmatic proposition in economics but as an articulate major premises of the definition and the scheme of the Act, and as a necessary postulate of industrial disputes and statutory resolution thereof. 39. An industry is not a utility but geared to utilities in which the community has concern. And in this mundane world where law lives now, economic utilities - material goods and services, not transcendental flights nor intangible achievements - are the functional focus of industry. Th....
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....the dam and it worked for the ultimate production of a dam. 37. The Hon'ble Kerala High Court in the case of Dhanalakshmi Bank Ltd v. CIT (supra) considered the term "Industrial Undertaking" and held as under: - "7. The next question arising in the maximum number of appeals, i.e., for the years 1996-97 to 2005-06; 10 years, is the question of deduction under Section 35D of the Act. The question framed is as below: "Whether the Tribunal was correct in having declined amortisation of expenses incurred in connection with the issue of public subscription of shares under Section 35D for reason of the assessee being not an 'industrial undertaking'?" 8. In this context, we have to first notice that by Finance Act, 2008 with effect from 01.04.2009 there was an amendment of Section 35D by Section 8 of the Finance Act, which reads as under: "8. Amendment of Section 35-D.- In Section 35-D of the Income Tax Act, with effect from the 1st day of April, 2009,- (a) for the words "industrial undertaking", wherever they occur, the word "undertaking" shall be substituted; (b) for the words "industrial unit", wherever they occur, the....
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.... there cannot be any necessary intention found from the statute especially since what were covered under sub-clause (ii) of Section 35D(1) was only "industrial undertakings". We are of the opinion that without granting any retrospectivity to the said amendment, we can look at the manner in which the "industrial undertaking" has been dealt with by the various High Courts in the context of the IT Act; to find whether the assessee, a Bank extending financial services, would be entitled to amortisation of preliminary expenses in connection with the issue of shares for public subscription. 10. The learned Counsel for the appellant has relied on the decisions in Alikunju, M.A.Nazeer Cashew Industries v. C.I.T. [(1987) 166 ITR 804 (Ker)], Shankar Construction Co. v. C.I.T. [(1991) 189 ITR 463 (Kar.)], C.I.T. v. Emirates Commercial Bank Ltd. [(2003) 262 ITR 55 (Bom.)], C.I.T. v. Computerised Accounting and Management Service Pvt. Ltd. [(1999) 235 ITR 502 (Ker)] and C.I.T. v. Peerless Consultancy and Service (P.) Ltd. [(2001) 248 ITR 178]. The learned Standing Counsel for Government of India (Taxes) has relied on the decision in Ansal Housing and Construction Ltd. v. CIT [(2010) 32....
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....curred for installation of a generator by a data processing company. The Tribunal's order allowing the claim under Section 32A was upheld, finding that 'the Revenue has been unable to show us any judgment of a court of this country or abroad which takes the view that the processing of data is not the processing of goods'. 15. Emirates Commercial Bank Ltd. again considered the issue of data processing and the allowance claimed under Section 32A in respect of the computers installed in the office premises, to find in favour of the assessee, which was held to be an industrial undertaking. 16. The High Court of Delhi, however, in Ansal Housing and Construction Ltd. took a contrary view with respect to the business of construction and sale of multi-storeyed residential buildings and complexes, promotion and development of residential colonies, etc. The said decision is in direct conflict with the decision of the Karnataka High Court in Shankar Construction Co. We also notice that the decision in Alikunju, M.A.Nazeer Cashew Industries was distinguished, finding that the Division Bench of this Court had only dealt with the expression "undertaking" and not wit....
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.... 163 (SC) at 169). xxx xxx xxx The words "industrial undertaking" therefore, should be understood to have been used in section 54D in a wide sense, taking in its fold any project or business a person may undertake. The "running of a lodge", by the assessee, therore, can be said to be an "industrial undertaking" within the meaning of section 54D of the Income-tax Act". Hence, this Court would answer the question in favour of the assessee and against the Revenue, finding the appellant-assessee to be eligible for the claim under Section 35D. The actual expenditure, whether it comes within Section 35D(2)(c)(iv) would be left for consideration by the AO. 38. The Hon'ble Jurisdictional High Court in the case of CIT v. Tolani Bulk Carriers Ltd. in Income Tax Appeal No.305 of 2008 dated 14.08.2008 held as under: "1. Heard learned Counsel appearing for both the sides. The interpretation placed on the term "industrial undertaking" occurring in the provision of Section 35D of the Income Tax Act, in our opinion, is proper. The grievance of the learned Counsel appearing for appellant-department that the decision of this Court in the Case of "Insight Diagnostic ....
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....bunal by its order dated 27.08.2018 in ITA.No. 1163/Mum/2011 allowed similar claim in favour of the assessee. 42. Ld. Counsel for the assessee further placing reliance on the following decisions submits that in all these cases it has been held that the amount amortized with respect to Employees Stock Option Scheme [ESOP] issued as per the SEBI guidelines shall be allowable as deduction u/s. 37(1) of the Act and the following decisions have been followed in assessee's own case for the A.Y. 2006-07. (i) PVP Ventures Ltd vs CIT [2012] 23 taxmann.com 286 (Madras High Court) (ii) New Delhi Television Ltd, vs CIT [2017] 398 ITR 57 (Delhi) (iii) Biocon Ltd. vs DCIT [2013] 35 taxmann.com 335 (Bangalore Tribunal) (Special Bench). (iv) M/s Accenture Services Pvt Ltd. vs DCIT [2010] ITA 4540/MUM/08 (Mumbai Tribunal). 43. Ld. DR fairly submitted that the issue has been decided in favour of the assessee in assessee's own case for the A.Y. 2006-07. 44. We have heard the rival submissions, perused the orders of the authorities below and the decision of the Coordinate Bench. On a perusal of the order of the Coordinate Bench in ITA.No. 1163/Mum/2011 date....
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....lding said disallowance is fallacious and against the legal propositions as laid down by the various judicial forums. The Ld. A.R. relied on a series of decisions in defence of his arguments namely; "1. PVP Ventures Ltd v. CIT [2012] 23 taxmann.com 286 (Madras-High Court) 2. New Delhi Television Ltd. v. CIT [2017] 398 ITR 57 (Delhi High Court) 3. Biocon Ltd. v. DOT [2013] 35 taxmann.com 335 (Bangalore Tribunal) (SB) 4. M/s Accenture Services Pvt. Ltd. v. DCIT [2010] ITA/4540/MUM/08 (Mumbai Tribunal) 14. The Ld. D.R., on the other hand, relied on the order of authorities below. 15. Having heard the rival submissions of both the parties and considering the facts on record, we find that in this case the assessee has amortized the expenses in connection with Employee Stock Options Scheme as per SEBI guidelines and claimed the same as revenue expenditure which according to the AO was not correct and he disallowed the same by holding that same is of capital in nature which was also affirmed by the CIT(A). We are not in agreement with the conclusion drawn by the Ld. CIT(A) on this issue that the amortization of expenditure claimed by t....
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....property. In view, thereof, it is submitted that since the premise in question is let out for only part of the year, the rent actually received should be accepted as the assessable annual value. 49. Ld. Counsel for the assessee without prejudice to the above submits that the annual value as per section 23(1)(b) of the Act of the Taj building is Rs..48,13,992. The annual value as per section 23(1)(a) of the Act should be municipal rateable value i.e. Rs..1,31,300. Since the annual value as per section 23(1)(b) of the Act is higher than the municipal rateable value as per section 23(1)(a) of the Act, the same may be accepted as the assessable annual value. In support of the above contentions Ld. Counsel for the assessee placed reliance on the decision of the assessee's own case in ITA.No. 1163/Mum/2011 dated 27.08.2018 for A.Y. 2006-07 and also the following decisions: - i) M.V. Sonavala v. CIT [1989] 42 Taxman 123 (Bombay High Court) ii) Smt. Smitaben N. Ambani v. Commissioner of Wealth [2009] 323 ITR 104 (Bombay High Court) iii) Tip Top Typography vs CIT [2014] 48 taxmann.com 191 (Bombay High Court) 50. Ld. DR vehemently supported the order of the A....
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....fair market value has been established bythe AO to be much higher than the actual rent received. It is not the caseof the appellant that the lease in question was subject to the rent control act and therefore the standard rent was to be considered. In such a scenario, as per the legal position obtaining, the AO was expected to arrive at reasonable rent expected from the said property. The contention of the AR that the AO was legally bound to consider the rateable value fixed by Municipal Authorities as the basis for working out the ALV is misplaced since the municipal valuation was only one of the criteria available with the AO to determine the reasonable rent expected from the said property. The AO has rightly placed reliance on a number of judicial pronouncements in his order to support that the adoption of municipal rateable value was not binding on him. Further, there is no merit in the AR's contention that the comparison by the AO with the benchmarked property was inappropriate. In fact, the AO has been very fair to have put a premium of only 20% on the residential property, with which the impugned property was compared, to evaluate the potential rental of the commercial p....
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....bay High Court) 11. Tip Top Typography v. CIT [2014] 48 taxmann.com 191 (Bombay High Court)" The Ld. Counsel submitted that the municipal valuation for Taj Building premises as shown in the property tax bill is Rs. 1,31,300/- whereas the actual rent received for the premise is Rs. 11,32,704/-. Therefore as against the municipal valuation of Rs. 1,31,300/- the actual rent received for the leased premises of Rs. 11,32,704/- should be taken as the actual rent is higher than the municipal valuation. The Ld. A.R. alternatively submitted that if the composite of rent and hire charges for the furniture and fixtures are taken together that could be taken the ALV and in defence of his proposition the Ld. A.R. relied on the following decisions: "1. Shambhu Investment (P.) Ltd. vs. CIT (2003) 129 Taxman 70 (Supreme Court) 2. CIT vs. Shambhu Investment (P.) Ltd. "(2001) 116 Taxman 795 (Calcutta High Court) 3. Dudhsagar Investments (P) Ltd. vs. ACIT (2014) 110 DTR 0225 (Bombay High Court) 4. Shibani S. Bhowjani v. DCIT (2017) 166 ITD 488 (Mumbai Tribunal)" 19. The Ld. D.R., on the other hand, relied on the order of authorities below....
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....us 30% of the said rate and thus ALV was fixed at Rs. 72 per sq. ft. per month. The AO thus calculated the ALV at Rs. 35,50,000/-. The Ld. Counsel has also pointed out during the course of hearing that the building leased out by the assessee known as Taj Building was erroneously misconstrued by the AO as Taj Hotel and the whole process of determination of ALV went with wrong parameters and presumptions. We find merit in the submissions of the Ld. A.R. that the Belvedere, a government owned building at Breach Candy is not at all comparable as the two are located at different localities in Mumbai and thus we are in agreement with the arguments of the Ld. A.R. that the said estimation is fallacious and suffer from several infirmities. After perusal of provisions of section 23, we find that the annual value of any property has to be determined as per the provision of section 23(1)(a) or 23(1)(b). In the present case, the property is let out and therefore the rent received is Rs. 11,32,704/- and the same has to be treated as ALV as the municipal valuation of the said premises is Rs. 1,31,300/-. The case of the assessee is supported by the various decisions referred to and relied by the ....
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.... to confirming the interest disallowance on the loans given to subsidiaries, interest on Income-tax refund and interest on warrants conversion application money taxed under the head "income from other sources" instead of "income from business" 56. Ld. Counsel for the assessee submitted that this ground is not pressed as there is no impact on the assessed income and hence academic. In view of the submissions of the Ld. Counsel for the assessee this ground is treated as not pressed. Further, we keep the issue open and the decision taken for this year shall not be treated as precedent for later years. This ground is dismissed as indicated above. 57. Assessee has raised additional grounds as under: - "1. The Hon'ble Commissioner of Income-tax (Appeals) erred on facts and in law in making upward adjustment of disallowance computed under section 14A of the Act by disallowing 5% of the expenses as against the actual expenditure incurred, while computing "book profit" under section 115JB of the Act. 2. On the facts and in the circumstances of the case and in law, considering that an adhoc disallowance computed under section 14A of the Act does not represent actu....
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.... cannot be made while computing the book profits. We further find that the assessee himself disallowed an amount of Rs..37,07,020/- as expenditure incurred towards earning exempt income while computing its book profits u/s. 115JB(2) of the Act. Further, we observed that the assessee while computing the income under normal provisions of the Act had made suomoto disallowance u/s. 14A at Rs..37,66,085/-, as this computation of suomoto disallowance was made on a scientific basis we feel it appropriated to adopt the same even while computing the book profits u/s. 115JB of the Act. Thus, we direct the Assessing Officer to restrict the disallowance u/s.14A to Rs..37,66,085/- while computing the book profits u/s. 115JB of the Act. This ground is partly allowed. ITA.No. 6860/MUM/2011 (A.Y. 2007-08) (Revenue Appeal) 60. Coming to revenue's appeal, it is submitted that the tax effect in revenue's appeal is below Rs..50 Lacs and in view of the CBDT Circular No. 17/2019 dated 08.08.2019 in F.No.279/Misc.142/2007-ITJ (Pt), the appeal is not maintainable. In view of the submissions of both parties this appeal is dismissed as not maintainable as the tax effect is below Rs..50 Lacs. ITA.No....
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....at they hold equity shares of the company. 11) The CIT(A) erred in confirming the interest received on loan given to subsidiaries (Rs..101.12 lakhs), interest on income tax refund (Rs..56.17 lakhs), interest on warrant conversion application money (Rs..30.30 lakhs) and others pertaining to letter of credit (Rs..3.66 lakhs) would be taxed under the head income from other sources and not as business income as offered by the appellant." 62. Ground No. 1 of grounds of appeal is relating to depreciation on intangible assets i.e. non-compete fees. This ground is similar to Ground No. 1 of grounds of appeal raised for the A.Y. 2007-08 and the decision taken therein shall apply mutatis-mutandis to the appeal for the A.Y. 2008-09 also. We order accordingly. 63. Ground No. 2 to 8 of grounds of appeal are relating to disallowance towards warrant issue expenses claimed u/s 35D of the Act. This ground is similar to Ground No. 3 and 4 of grounds of appeal raised for the A.Y.2007-08 and the decision taken therein shall apply mutatis-mutandis to the appeal for the A.Y. 2008-09. We order accordingly. 64. Ground No. 9 of grounds of appeal is relating to disallowance towards Employe....
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....d any shares in the company. Ld. Counsel for the assessee further submits that that payments made to Mr. Neol Tata is included in his salary and applicable TDS has been deducted. TDS has also been deducted while making commission payments to Mr. Suntook. The assessee submits that it is a listed company and the commission paid is in accordance with the terms of the agreement entered into with the directors. The commission paid is within the ceiling limit for such payment allowed under the provisions of the Companies Act, 1956 and the same was decided by the board of directors on the recommendation of the remuneration committee. Further, such commission has been approved by the shareholders of the company. 68. Ld. Counsel for the assessee placed reliance on the following decisions in support of his contentions: - i) New Silk Route Advisors P. Ltd. Income Tax Appeal No. 216 of 2016 (Bombay High Court) ii) Loyal Motor Service Co. Ltd. vs CIT [1946] 14 ITR 647 (Bombay High Court) iii) AMD Metplast (P.) Ltd. vs DCIT [2012] 20 taxmann.com 647 (Delhi High Court) iv) CIT vs Career Launcher India Ltd. [2012] 20 taxmann.com 637 (Delhi High Court) ....
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.... a final Assessment Order dated 24th January, 2014 was passed by the Assessing Officer under Section 143(3) read with Section 144(C) of the Act. (b) Being aggrieved by the Assessment Order dated 24th January, 2014 the respondent-assessee filed an appeal to the Tribunal. The impugned order of the Tribunal allowed the respondent-assesee's appeal holding that the payment of bonus was part of the employment agreement and it was a performance based payment. The impugned order further notes the fact that the grievance of the revenue that the entire payment of bonus to the employee shareholders had resulted in payment of less taxes in comparison to tax payable on the same if distributed as dividend was found incorrect. Reliance was also placed upon the decision of the Supreme Court in the case of CIT v/s. Shahzada Nand and Sons (108 ITR 358) wherein almost identical circumstances an issue of commission paid to the employee shareholders was held to be allowable under Section 36(1)(ii) of the Act. In the above view, the appeal of the respondent was allowed by the impugned order dated 20th February, 2015. (c) The grievance of the Revenue before us is that the bonus whic....
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....al of the shareholders. For the f.y. 07-08 the profit as per sec 309 worked out to Rs. 3068.91 lakhs and a provision for commission to non executive directors at 1% of the profit amounting to Rs. 30.60 lakhs was made in the accounts. You are requested to refer to note no. 3 on page 44 of the annual report copy attached. After the shareholders approved the payment of commission in the AGM held on 27.8.08, commission on was paid to the directors as under. Particulars Rs.. No. of Shares held F.K.Kavarana 600,000 Nil N.A.Soonawala 550,000 Nil B.S.Bhesania 550,000 Nil A.D. Cooper 550,000 Nil K.N.Suntook 500,000 360 Zubin Dubash 250,000 Nil Total 3,000,000.00 Excess provision of Rs. 60000 has been written back in the accounts and offered for tax, In the return the company claims the commission in the year of payment after approval by the shareholders. Accordingly, in the a.y. 08-09, the company has claimed actual commission paid to the directors Rs. 3450000 for the f.y. 06-07 which was offered for disallowance in the return for a.y. 07-08. Similarly, in ay. 08-09 the company has offered for d....
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....he decision taken for this assessment year shall not be treated as precedent for later years. This ground is dismissed as indicated above. 74. Assessee has raised following additional ground: - 1. The Hon'ble Commissioner of Income-tax (Appeals) erred on facts and in law in upholding the action of the learned Assessing Officer in making upward adjustment of disallowance computed under section 14A of the Act r.w. Rule 8D of the rules while computing "book profit" under section 115JB of the Act. 2. On the facts and in the circumstances of the case and in law, considering that the disallowance computed under section 14A of the Act r.w. Rule 8D of the Rules does not represent actual expenditure incurred for earning exempt income, the same should not be added back while computing 'book profit' under section 115JB of the Act." 75. These additional grounds are similar to additional grounds of appeal raised for the A.Y. 2007-08 regarding the disallowance u/s. 14A r.w. Rule 8D while computing the book profits u/s. 115JB of the Act and the decision taken therein shall apply mutatis-mutandis to the appeal for the A.Y 2008-09 also. We order accordingly. I....
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....ent order quoted above, the AO has not given any cogent reason for not being satisfied with the claim of the appellant. The AO had further erred in disallowing employees' cost and miscellaneous expense at Rs..1.86 Crores over and above the disallowance computed as per Rule 8D, specially on account of the fact that Rule 8D (iii) itself provides for disallowance of administrative expense in form of 0.5% of the average value of investment. As the appellant's computation of disallowance u/s.14A is satisfactory, the disallowance u/s,14A is restricted to Rs..35,90,326/- and the disallowance by the AO is deleted." 81. We also further noticed from the Assessment Order that, the assessee has made elaborate submissions and a detailed computation of the expenditure attributable for earning exempt income which is said to be consistent method of computation on a scientific basis made from the A.Y.2006-07. We further find that even though the Assessing Officer extracted the elaborate submissions and the computation of disallowance made by the assessee, there is no satisfaction recorded by the Assessing Officer as to why the suomoto computation of disallowance of expenses made by the a....
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....incurred in AY 2008-09 towards issue of equity shares to promoters claimed u/s 35D of the Act. 6) The CIT(A) erred in confirming the disallowance of Rs. 71,000/- (i.e. 1/5th of Rs. 355,000/-) incurred in AY 2008-09 towards issue of warrants to promoters claimed u/s 35D of the Act. 7) The CIT(A) erred in not deleting the disallowance made by AO in respect of commission paid u/s 36(l)(ii) to the extent of Rs. 9,359/- in case of Mr. K.N.Suntook, Director of the company on the ground that they hold equity shares of the company. 8) The CIT(A) erred in confirming the interest income of Rs. 8,63,99,000/- would be taxed under the head income from other sources and not as business income as offered by the appellant." 83. Ground No. 1 of grounds of appeal is relating to depreciation on intangible assets i.e. non-compete fees. This ground is similar to Ground No. 1 of grounds of appeal raised for the A.Y. 2007-08 and the decision taken therein shall apply mutatis-mutandis to the appeal for the A.Y.2009-10 also. We order accordingly. 84. Ground No. 2 to 6 of grounds of appeal are relating to disallowance towards warrant issue expenses claimed u/s 35D of the Act....
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.... "1) The Commissioner of Income Tax (Appeals) [CIT(A)] erred in confirming the disallowance made by Assessing Officer (AO) for depreciation claim of Rs. 161,853/- on intangible assets - non-compete fees. 2) The CIT(A) erred in applying Rule 8D for purposes of disallowance u/s 14A of the Act. 3) The CIT(A) has further erred in considering the disallowance under section 14A of Rs. 4,38,60,777/- for the purposes of calculation of book profits under section 115JB of the Act. 4) The CIT (A) erred in confirming the disallowance of Rs. 147,635/- (i.e. 1/5th of Rs. 738,189/-) incurred towards preferential issue of shares claimed u/s 35D of the Act. 5) The CIT (A) erred in confirming the disallowance of Rs. 185,640/- (i.e. l/5th of Rs. 928,198/-) towards warrant issue claimed u/s 35D of the Act. 6) The CIT (A) erred in confirming the disallowance of Rs. 20,95,679/- (i.e. l/5th of Rs. 10,478,393/-) incurred in AY 2008-09 towards issue of equity shares on right basis claimed u/s.35D of the Act. 7) The CIT (A) erred in confirming the disallowance of Rs. 163,225/- (i.e. 1/5th of Rs. 816,129/-) incurred in AY 2008-09 towards issue of eq....
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....ted under Rule 8D cannot be applied while computing the disallowance u/s. 115JB of the Act. Therefore, the suomoto disallowance as computed by the assessee shall be adopted even while computing the book profits u/s. 115JB of the Act as the disallowance was computed on a scientific method. This ground is partly allowed. 93. Ground No. 4 to 8 of grounds of appeal are relating to disallowance towards warrant issue expenses claimed u/s 35D of the Act. This ground is similar to Ground No. 3 and 4 of grounds of appeal raised for the A.Y.2007-08 and the decision taken therein shall apply mutatis-mutandis to the appeal for the A.Y. 2010-11. We order accordingly. 94. Ground No. 9 of grounds of appeal is relating to the disallowance made u/s. 36(1)(ii) of the Act by the Assessing Officer in respect of commission paid to the Directors on the ground that they hold equity shares of the company. This ground is similar to Ground No. 10 of grounds of appeal raised for the A.Y. 2008-09 and the decision taken therein shall apply mutatis-mutandis to the appeal for the A.Y. 2010-11. We order accordingly. 95. Ground No. 10 of grounds of appeal is relating to confirming the interest disallow....
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....n the circumstances of the case and in law, considering that the disallowance computed under section 14A of the Act read with Rule 8D of the Rules does not represent actual expenditure incurred for earning exempt income, the same should not be added back while computing 'book profit' under section 115JB of the Act." 98. The additional grounds are purely legal grounds, therefore the same are admitted on hearing both the parties. 99. Ground No. 1 of grounds of appeal is relating to depreciation on intangible assets i.e. non-compete fees. This ground is similar to Ground No. 1 of grounds of appeal raised for the A.Y. 2007-08 and the decision taken therein shall apply mutatis-mutandis to the appeal for the A.Y.2011-12 also. We order accordingly. 100. Ground No. 2 and additional grounds raised by the assessee are similar to Ground Nos. 2 and 3 of grounds of appeal raised for the A.Y.2010-11 and the decision taken therein shall apply mutatis-mutandis to the appeal for the A.Y.2011-12 also. We order accordingly. 101. Ground No. 3 and 4 of grounds of appeal are relating to disallowance towards warrant issue expenses claimed u/s 35D of the Act. This ground is similar ....
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....als) [CIT(A)] erred in confirming the disallowance made by Assessing Officer (AO) for depreciation claim of Rs. 91,042/- on intangible assets - non-compete fees. 3) The CIT(A) erred in applying Rule 8D(2)(iii) towards disallowance u/s 14A of the Act without giving any reasons for not accepting disallowance offered by Appellant towards 14A. 4) The CIT(A) erred in applying Rule 8D (2)(iii) towards disallowance u/s 14A of the Act for working out book profit u/s 115JB of the Act without giving any reasons for not accepting disallowance offered by Appellant towards 14A. 5) The CIT(A) erred in confirming disallowance of Rs. 20,95,679/- (i.e. 1/5th of Rs. 10,478,393/-) incurred in AY 2008-09 towards issue of equity shares on right basis claimed u/s 35D of the Act. 6) The CIT (A) erred in confirming disallowance of Rs. 37,65,576/- (i.e. 1/5th of Rs. 18,827;878/-) incurred in AY 2011-12 towards issue of CCPS on right basis claimed u/s 35D of the Act. 7) The CIT (A) erred in confirming disallowance of Rs. 99,39,752/- (i.e. 1/5th of Rs. 4,96,98,760/-) incurred in AY 2012-13 towards issue of CCPS on right basis claimed u/s 35D of the Act. 8....
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....the appeal for the A.Y. 2012-13. We order accordingly. 113. Ground No. 10 of grounds of appeal is relating to confirming the interest disallowance on the loans given to subsidiaries, interest on Income-tax refund and interest on warrants conversion, application money, taxed under the "Income from other sources" instead of "business income". Ld. Counsel for the assessee submitted that this ground is not pressed as there is no impact on the assessed income and hence academic. In view of the submissions of the Ld. Counsel for the assessee this ground is treated as not pressed. Further, we keep the issue open and the decision taken for this assessment year shall not be treated as precedent for later years. This ground is dismissed as indicated above. ITA NO.364/MUM/2017 (A.Y: 2012-13) (Revenue Appeal) 114. Revenue has raised following grounds in its appeal: - "1. "Whether on the facts and circumstance of the case and in law, the Ld. CIT(A) erred in holding that disallowance made u/s 14A of the I T Act, as per Rule 8D(2)(ii) is not correct since the reserve & Surplus of the assessee company is more than investment relying on the decision in the case of HDFC Ltd.( 366 I....
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....mpany." 117. Ground No. 1 of grounds of appeal is relating to depreciation on intangible assets i.e. non-compete fees. This ground is similar to Ground No. 1 of grounds of appeal raised for the A.Y. 2007-08 and the decision taken therein shall apply mutatis-mutandis to the appeal for the A.Y.2013-14 also. We order accordingly. 118. Ground No. 2 grounds of appeal is relating to disallowance u/s. 14A r.w. Rule 8D(2)(iii) of the I.T. Rules. This ground is similar to Ground No. 3 of grounds of appeal raised for the A.Y. 2010-11 and the decision taken therein shall apply mutatis-mutandis to the appeal for the A.Y.2013-14 also. We order accordingly. 119. Ground Nos. 3 to 5 of grounds of appeal are relating to disallowance towards warrant issue expenses claimed u/s 35D of the Act. This ground is similar to Ground No. 3 and 4 of grounds of appeal raised for the A.Y.2007-08 and the decision taken therein shall apply mutatis-mutandis to the appeal for the A.Y. 2013-14 also. We order accordingly. 120. Ground No. 6 of grounds of appeal is relating to the disallowance made u/s. 36(1)(ii) of the Act by the Assessing Officer in respect of commission paid to the Directors on the ground....