TaxTMI 
TaxTMI 
2019 (1) TMI 1913
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the facts and issue in most of the grounds of all the four appeals and two cross objections are similar, so, we take the grounds of appeal of ITA No. 2397/Ahd/2015 as the lead case and its findings will be applicable to the other appeals as adjudicated below in this order. 3. The revenue has raised following substantive grounds of appeal:- ITA No.2397/Ahd/2015 filed by revenue "1. The Ld. Commissioner of Income tax (A) has erred in law and on facts in directing the Assessing Officer to verify the "actual expenditure incurred by the assessee in subsequent year, out of the provision made of Rs. 1,56,13,031/- on account of liability for damaged goods and if actual expenses exceeded the provision then delete the quantum addition. 2. The Id. CIT(A) has erred in law and on facts in deleting the addition of Rs. 15,32,979/- made on account of disallowance on non-compete territory rights i.e. goodwill. 3. The Id. CIT(A) has erred in law and on facts in deleting the addition of Rs. 45,00,077/- on account of disallowance of advances written off. 3.1 The Id. CIT(A) has erred in law and on facts by not appreciating the facts that the amount in question had not been credited and; offe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ant part of the decision is reproduced as under:- "2.2 I have considered the contentions made by appellant. I |have also considered the observation of the assessing officer while deciding the issue under consideration. After going through all the facts I am inclined to agree with the contention of the appellant. It is seen that in earlier years in the appellant's case the same issue has already been decided in favour of appellant, by my predecessor CIT(Appeal) and by Hon'ble ITAT Ahmedabad. My predecessor has deleted this issue in immediately preceding year i.e. A.Y.2009-2010, while following the decisions of earlier CIT(A) and the decision of jurisdictional ITAT in assessment year 2006-2007. This year the appellant has also relied upon the decision of Hon'ble Jurisdictional ITAT for A.Y.2007 - 2008 vide ITA No. 25/Ahd/2011 dated 14/02/2014. The Hon'ble It At Ahmedabad has deleted the addition while considering the order of the CIT(A) in A.Y.2009-2010 which is reproduced as under: - "I have carefully considered rival submissions. It is seen that disallowance under the head damaged goods liability is being made from assessment year 200-3-04 onwards. This issue is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e decision of my predecessors in earlier years and in view of the decision of Hon'ble ITAT for A.Y. 2007-08, the A.O. is directed to verify the actual expenditure incurred i(i the subsequent year by the appellant out of the said amount of Rs. 1,56,1,031/-, if expenditure is equal to or more than the said amount, then the A.O. directed to delete the entire disallowance. If the A.O finds that the actual expenditure is less than Rs. 1,56,13,031/-, then the disallowance will be restricted to the extent of shortfall and balance disallowance will be deleted. Accordingly, subject to verification by the AO, this ground of appeal is allowed." 6. We have heard the rival contentions and perused the material on record carefully. During the course of appellate proceedings before us, the ld. counsel has contended that the same issue pertaining to the assessment year has been decided by the Hon'ble High Court in the case of the assessee itself in favour of the assessee vide Tax Appeal No. 1298 of 2018 order dated 07-07-2008. With the assistance of the Ld. Counsel we have gone through the judicial pronouncement as supra. The relevant part of the same is reproduced as under:- "Heard learned ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 8. At assessment the assessing officer noticed that assessee has claimed depreciation of Rs. 15,32,979/- on account of non-compete territory rights i.e. goodwill @ 25%. The assessing officer observed that this claim was not allowed to the assessee in the earlier assessment years, therefore, assessee was asked during the course of appellate proceedings as to why the same should not be disallowed in the current assessment year as well. The assessee explained that Hon'ble High Court has decided the SCA No. 375 of 2005 of the assessee and quashed the re-assessment proceedings initiated by the department for disallowing the depreciation in the first year of claim being assessment year 2002-2003. The assessing officer has not accepted the reply of the assessee stating that the department has not accepted the decision of appellate authorities and further appeal has been filed. Consequently, he has disallowed the depreciation of non-compete territory rights to the amount of Rs. 15,32,979/- and added to the total income of the assessee. 9. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has allowed the appeal of the assessee. Relevant part of the decision of ld.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessee as there are no adverse comments on the merits of the claim, and for the sake of consistency, we confirm the stand taken by the CIT(A) and decline to interfere in the matter. It is also important to bear in mind the fact that the net impact of this decision having been accepted is that no reassessment or re-computation can be done at this stage, since such an action will be time barred now and the provisions of Section 153(3], which restrict this limitation on time barring to give effect to finding or directions of Hon'ble High Court's order, will not come to the rescue to the assessee in this case since there is no such "finding or direction" on merits, which can be given effect, in terms of Hon'ble Supreme Court's judgment in the case of Rajinder Nath Vs CITf 120 ITR 14). The relaxation under section 153(3), as held by Hon'ble Supreme Court in this case, comes to the rescue of the revenue only in respect of such findings or directions as are necessary for disposal of the matter. The matter having been decided on the ground of jurisdiction alone, there was no need to deal with the merits of the case, and, as such, following Hon'ble Supreme Court's ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d settled 'position for other assessment years, and contrary to the decision of the coordinate bench in the immediately preceding assessment year. However, as we have reached this decision on somewhat peculiar facts of this case, in which an inaction of the revenue authorities has prejudiced their interests more than anything else, present decision cannot be an authority on the broad legal issues involved and must remain confined to the facts of this case. In view of these discussions, subject to the observations made above, and bearing in mind entirety of the case, we approve the conclusion arrived at by the CIT(A) and decline to interfere in the matter." Respectfully following the decision of Co-ordinate Bench of the ITAT as above, we do not find any error in the decision of ld. CIT(A) therefore this ground of appeal of the revenue is also dismissed. Ground No. 3 & (i) 11. During assessment the assessing officer noticed that assessee has written off advances to the extent of Rs. 45,00,077/- in its P & L a/c related to advances to suppliers for purchase of material, staff advances, security deposit etc.. The assessing officer observed that only bad debt incurred due to sa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s of the appellant. Hence, the write off i's allowable as business loss being a genuine business loss. The Hon'ble Suprerne Court in the case No.807/M7 807/M/12/M/12 of CIT v. Wood Ward Governor India Pvt. Ltd. 179 Taxrnan 326 (SC) held that the expression "expenditure" as used in case of No. sec.37 may, in circumstances of particulars case, cover an amount which is really a loss, even though said amount has not gone out from pocket of the assessee. The Hon'ble Supreme Court in the case of Badridas Daga v. CIT (34 ITR 10) Calcutta Co. Ltd. v, CIT (37 ITR 1) has held that the profit to be assessed are the real profits and they must be ascertained on ordinary principles of commercial trading and commercial accounting. The profit should be computed after deducting losses and expenditure incurred for the purposes of busin BSS unless such losses or expenditure are expressly, or by necessary implication, {disallowed by the Act. Reliance is also placed on the decision of the Hon'ble Supreme Court in the case of TRF Ltd (supra) where it was held that debt need not be proved to be irrecoverable and it is sufficient if they are written off. The decisions in the case of Mohan ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessee had shown sundry creditors since financial year 2008-09 and there was no change in the outstanding liability standing against their names. On verification of the details filed by the assessee the assessing officer observed that assessee had not filed any evidence in the form of correspondence with the afore said parties that the said liability still exists. The assessing officer observed that its liability in relation to M/s. Arpit Foods M/s KBM Foods had remained outstanding for a long time and the assessee had not filed any evidence in the form of correspondence with the said parties and the evidence that the dispute with such parties were pending in the court. The assessing officer further observed that the amounts in relation to M/s. Arpit Foods M/s KBM Foods products and provisions of expenses in relation to the three identified parties were clearly covered under section 41 as re mission of liability therefore he had added back the total amount of Rs. 66,04,526/- to the total income of the assessee u/s. 41 of the act. 15. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has allowed the appeal of the assessee. Relevant part of the decision of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onus is upon) the revenue to establish that liability has ceased during the relevant previous year. 8.3 It is seen that the A.O. had not brought anything on reco "d to prove that these liabilities were not existing in the current assessment year I am also not inclined to agree with the contention of the A.O. that these liabilities had been paid off outside the books as the A.O. had not brought any material on record in support of this contention. It is also a matter of fact that the appellant is showing these liabilities in its balance sheet and I am inclined to agree with the contention of Ld. A.R. that these liabilities subsists in the absence of any adverse evidence. Secondly, the A.O. has not brought any material on record to prove that any benefit is obtained in respect of such trading liability by the appellant by way of remission or cessation. The mere fact that the liabilities are outstanding for more than three years does not make the liabilities unenforceable or the inabilities does not cease to exist. The appellant's case is also covered by the ratio of CIT. Calcutta vs Sugauli Sugar Works Pvt. Ltd. reported at AIR (1999) (S.C.) 1144. 8.4 In view of above fact, I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....has computed disallowance under section 14A of the act as per rule 8D of the IT Rule to the amount of Rs. 53,89,696 and added to the total income of the assessee. Aggrieved assessee has filed before the learned CIT appeal. The ld. CIT(A) had adjudicated the issue after following the decision of his predecessor on the same ground and directed the assessing officer to recalculate the disallowance under section 14A r.w. 8D of the IT rule after taking into consideration the correct figure as submitted by the assessee reported at para 4.1 of the order of the Ld.CIT(A). The relevant part of the order of the learned CIT appeal is reproduced as under :- "4.2 I have carefully considered the contention of the appellant as well as the observation of the A.O. It is observed that my predecessor CIT(A) vide her order No.CIT(A)-XI/83/ACIT.Cir-5/13-14 has deliberated on this issue. Relevant portion of the same is reproduced as under :- "4.2 I have carefully considered the rival contentions. I have also perused various case laws relied upon by the appellant. It is seen that the A.O. made disallowance u/s.14A as per the provisions of Rule 8D of I.T.Rules, 1962. The provisions of rule 8D were ins....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... made towards earning of interest free income. In this regard, it is seen from the assessment order that appellant has not furnished any evidence to show that investments were made from interest free funds. This issue has been dealt in the case ofGujarat Gas Financial Services Ltd., Hon'ble Special Bench of ITAT Ahmedabad 115 ITD 218 the issue of disallowance u/s.14A has been discussed in para 101 of the order of the Hon'ble ITAT Special Bench as under :- "there is no dispute and there cannot be any doubt, that some expenditure is incurred for making or earning from dividend. In case of Mixed Accounting the expenditure is not identified as such is directly is relate to earning of dividend. But that cannot be a ground to say that no expenditure is incurred for earning dividend income or that no expenditure could be related to that income. Upon hearing both parties and considering material available on record interest of justice will be served if 10% of the expenditure is allocated for earning dividend and disallowed u/s. 14A of the I.T. Act." The appellant contended that it was having sufficient interest free funds to invest in the snares and mutual funds and the A.O. ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....minvest was not considered by ITAT and hence, that ruling was incorrect. In the earlier year, ITAT had held that the disallowance for interest paid on loans borrowed for making investment in shares was not applicable, as the assessee did not earn any dividend from such investment. In the case of Technopack Advisors P Ltd [(2012) 50 SOT 31 (Delhi)(URO)]it is held,that Even if the investment in shares did not yield any dividend in the year under consideration, the disallowance u/s14A on the expenditure incurred for earning income was disallowable, notwithstanding the fact that no such income was earned. Honable Kerala HC in case of Popular Vehicles & Services Ltd [(2010)325 ITR 523 (Ker)] has held The assessee borrowed funds from banks, which were diverted to partnership firms, in which it was a partner. HC noted that the assessee did not receive any interest from those firms. The only benefit derived was share of profit, which was exempt u/s 10(2A). HC sustained the disallowance of interest by invoking provisions of Sec.14A. similarly in the case of Vishnu Anant Mahajan fJS-396-ITAT- 2012(Ahd)] Ahmedabad Special Bench of Hon'ble ITAT held, that Sec. 14A disallowance is applicabl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. 14A r.w. Rule 8D correctly after taking into consideration the correct figure submitted by the assessee. In the light of the above facts and circumstances we do not find any infirmity in the decision of learned CIT appeal therefore this ground of appeal of the revenue is dismissed. 21. In the result appeal ITA 3666/Ahd/2015 of the revenue is dismissed. ITA 3667/Ahd/2015 filed by revenue 22. On identical issues and facts the Ground nos. 1 &2 have already been adjudicated as supra in this order vide ITA No. 2397/Ahd82015 and applying the same findings we do not find any error in the decision of the Ld. CIT(A) therefore grounds of 1 &2 of this appeal of the revenue also stands dismissed. Ground No. 3 23. An identical issue on similar facts has been adjudicated in this order as supra vide ITA No. 3666 holding that the learned CIT appeal after taking into consideration the submission of the assessee has rightly directed the assessing officer to recalculate the disallowance u/s. 14A r.w. Rule 8D . After applying the same findings we do not find any infirmity in the decision of learned CIT appeal, therefore, this ground of appeal of the revenue is dismissed. 24. In the result, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as not pointed out any defect in the computation of disallowance as per the provisions of rule 8D as adopted by the Ld. A.O. The A.O. has kept the directions of CIT(A) given in earlier years while calculating disallowance under rule 8D. Accordingly, the computation for disallowance u/s.14A as adopted by the A.O. is taken correct for the purpose of this order. 4.4 It is seen that Id AR has relied upon various cases. A Perusal of these cases reveals that the Hon'ble ITAT allowed the appeal of the appellant as the A.O. has not recorded his satisfaction that the expenses claimed by the assessee is incorrect and the A.O. had straightway applied the provisions of rule 8D. The ratio of these cases will not be applicable in the instant case as the A.O. was not satisfied with the expenses claimed by the appellant and the A.O. and confronted this view to the appellant. In view of these facts, with due respect, I am not inclined to follow the ratio of these cases. I have further observed the facts of the case and the submissions of the appellant. It is seen that appellant's total investments amounted to Rs. 4118.31 lacs during this year, as against the surplus own funds of Rs. 66,66....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... I hold that disallowance for the purpose of section 14A is to be made against interest expenditure debited in the Profit & Loss account. This way, I am inclined to agree with the disallowance made by the Id. A.O. Further in the case of M/s. Dhanuka & Sons 339 ITR 319 Hon'ble Kolkata High Court has held that, it is for the assessee to show the source of acquisition of those shares by production of materials that those were acquired from the funds available in the hands of the assessee at the relevant point of time without taking benefit of any loan. Hon'ble Ahmedabad Bench in the case of ACIT vs Transformers & Rectifiers (India) Ltd. ITA No. 3090/Ahd/2011 has held that the onus is on the assessee to establish, that there is no nexus between the exempt income and the interest expenditure incurred. In the case of Chem invest Ltd [121 IIP 318 2009 (DEL)] Delhi Special Bench held that Sec. 14A disallowance had to be made in respect of interest on loans, which were utilized for investment in shares, even though no dividend income was earned on those shares during the relevant year. Whereas Hon'ble ITAT Chennai in the case of Siva Industries & Holding Ltd. [TS-438-ITAT-2011(CHN....