TaxTMI 
TaxTMI 
2021 (11) TMI 766
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....No. 43/Ahd/2016 filed by assessee 3. The fact in brief is that the return of income declaring loss of Rs. 107,67,77,438/- was filed on 14th October, 2020. The case was subject to scrutiny assessment and notice u/s. 143(2) of the Act was issued on 25th August, 2011. Assessment u/s. 143(3) of the Act was finalized on 29th March, 2014. Ground No. 1. (Disallowance of Rs. 11,41,72,708/- u/s. 14A r.w.r. 8D(2)(ii) of the Act) and ground no. 2 of cross objection filed by the assessee in sustaining disallowance u/s. 14A r.w.r. 8D(2)(ii) of Rs. 79,34,022/- 4. During the course of assessment, the Assessing Officer noticed that assessee has earned dividend income to the tune of Rs. 16,78,260/- claimed as exempt from tax. The assessee has suo moto disallowed expenses of Rs. 3,85,728/- u/s. 14A of the act. The Assessing Officer observed that the assessee had made large investment to the amount of Rs. 300.29 crores, therefore, assessee was asked to furnish the working of disallowance u/s. 14A r.w.r. 8D of the I.T. Rule, 1962. The detailed submission of the assessee in response to the aforesaid query raised by the Assessing Officer has been reproduced at the page no. 3 and 4 of the assess....
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....idered by Assessing Officer for making disallowance of interest expenditure under Rule 8D(2)(ii) of the Act includes interest on term loan, buyer's credit, packing credit, overdue interest, transit period interest, discounting charges, interest paid to vendors, etc., and such funds cannot be attributable to investment activities. Once interest expenditure is paid for specific business purpose and not for making investment in shares, proportionate disallowance under Rule 8D(2)(ii) cannot be made. The Hon'ble Chennai ITAT, in case of ACIT V/s Best & Crompton Engineering Limited (ITA No 1603/Mds/2012) dated 16th July 2012 [36 taxman.com 555] has held as under: "II. Section 14A of the Income-tax Act, 1961, read with rule 8D of the Income-tax Rules, 1962 ~ Expenditure incurred in relation to income not chargeable to tax [Bank interest] - Assessment year 2009-10 - Assessing Officer while computing disallowance under section 14A read with rule 8D, included bank interest and interest on term Loan - Commissioner (Appeals) excluded said interest from calculation of disallowance as assessee had utilized both loans for purpose of purchase of machineries and for expansion of pr....
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....he detailed break-up reproduced in Appellant's submission it is held that following expenditure are on general borrowing and Appellant has not proved direct nexus with business activity hence such interest expenditure is considered for making disallowance of interest as per Rule 8D(2)(ii). Particulars Amount (Rs.) Interest on inter-corporate deposit 2,46,28,881 Bank interest 16,39,20,525 Others 1,78,05,891 Interest on debentures 18,16,401 Total 20,81,71,698 Thus, disallowance of interest under Rule 8D(2)(ii) is required to be made after adopting interest expenditure of Rs. 20,81,71,698 and after considering observations made for net interest expenditure in subsequent Paras. 3.5 It is also observed that Appellant has earned interest income of Rs. 35.54 crores which is higher than interest expenditure of Rs. 20,81 crores worked out herein above and as both interest income and expenditure are taxed as part of income from business or profession, only net interest expenditure is required to be disallowed under Rule 8D(2)(ii). Hon'ble Ahmedabad I.T.A.T., in case of Safe/ Reality P. Ltd. V/s ACIT (OSD) (AY 2010- 11) in ITA No. ....
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.... Rs. 66.28 crores as on 31st March, 2009 and average works out to Rs. 166.39 crores on which disallowance under Section 14A read with Rule 8D(2)(iii) being 0.5 % of average investment works out to Rs. 83,19,750/-3nd as Appellant has already made disallowance of Rs. 3,85,728/-, disallowance under Section 14A is confined to Rs. 79,34,022A. In the result, addition made by Assessing Officer for Rs. 12,37,95,730/- is restricted to Rs. 79,34,022/-." 6. Heard both the sides and perused the material on record. Without reiterating the facts as elaborated above during the course of assessment, the Assessing Officer has computed disallowance of expenditure incurred towards earning exempt income in accordance u/s. 14A r.w.r. 8D of I.T. Rule, 1962 to the amount of Rs. 12,37,95,730/-. However, the ld. CIT(A) has restricted the disallowance to the extent of Rs. 79,34,022/- after taking into consideration the submission of the assessee that it had sufficient interest free funds available with it and the nature of the expenditure incurred by the assessee was not related to investment made by it on which exempt income earned. It is undisputed fact that the total exempt income earned during the ye....
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....A) has deleted the disallowance made by the Assessing Officer. The relevant part of the decision of ld. CIT(A) is reproduced as under:- "5.3 I have carefully considered the Assessment Order and submission filed by appellant. The Assessing Officer has observed that the appellant has purchased car amounting to Rs. 76,80,973/- on which depreciation of Rs. 38,40,4877- at 50% has been claimed. From the provision of section 32 of the Act read with the Appendix-1 of the Income Tax Rules it can be seen that the higher rate of depreciation is allowable on the ''New Commercial Vehicle". There is distinction between commercial vehicle and private vehicle. The vehicle on which higher rate of depreciation has been claimed is not registered as "Commercial Vehicle" with the RTO and hence the benefit of higher rate of depreciation cannot be allowed on such vehicle. On the other hand, Appellant relied on the notification No. 10/2009/F No. 142/01/09-TPL dated 19.01.2009 issued by CBDT, in which it is clearly mentioned that a new commercial vehicle purchased on or after 01.01.2009 but before 30.09.2009 and put to use before 30.09.2009, is eligible to be depreciated at the rate of 50%....
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....ehicle", therefore the assessee was not entitled for additional depreciation claimed @ 50% on those vehicles acquired during the year. When the matter was carried before the first, appellate authority, Id.CIT(A) has examined the provisions of Motor Vehicle Act and allowed the claim as follows:- "5.3. Decision: I have carefully perused the assessment order and the submissions given by the appellant. The A.O. has disallowed the claim of depreciation at higher rate as it has been held by him that the vehicle was not a commercial vehicle. The A.O. has taken the meaning of commercial vehicle in common parlance and has held that commercial vehicle is distinct and different from private vehicle and the vehicle used by the appellant is a private vehicle. The appellant has submitted that as per Note No. 6 to the Rules in Appendix-1, the word commercial vehicle has been defined to include Light Motor Vehicle as defined by Motor Vehicle Act, 1988. Further, section 2(21) of the Motor Vehicle Act define the word Light Motor Vehicle as- "Light Motor Vehicle means transport vehicle or amnibus. The gross vehicle weight of either of which or a Motor Car or a Tractor or road roller....
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.... the decision of Co-ordinate Bench of the ITAT Ahmedabad on identical issue and similar facts in the case of Voltamp Transformers Ltd. ITA 1676/Ahd/2012 dated 22nd March 2013 and the decision of ITAT Ahmedabad in the case of Sunil Kumar Dhulichand HUF Vs. ACIT (CPC) Bangalore ITA 454/Ahd/2013 as elaborated in his findings supra in this order. Following the decision of Co-ordinate Bench, we do not find any infirmity in the decision of ld. CIT(A), therefore, this ground of appeal of the Revenue is dismissed. Ground No. 3 (Deleting disallowance of excise duty of Rs. 6,51,16,385/-) filed by revenue 10. At the time of assessment, the Assessing Officer noticed that assessee has claimed excise duty claim adjusted against securities premium account amounting to Rs. 3,67,71,030/- and Rs. 2,83,45,355/- respectively. On query, the assessee explained that the same has not been charged to P & L account rather it has been set off against the share premium account as per the scheme of capital reduction sanction by High Court of Gujarat dated 15th Feb, 2013 being an item of section 43B of the Act. It has been claimed on payment basis. The detailed explanation of the assessee vide submission ....
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.... period from 01/11/2009 to 13/11/2009 showing the debit entry of Rs. 2,48:59,319/- is attached herewith vide Annexure-2A. 1,72,21,030/- The final order of The Commissioner of Central Excise, Ahmedabad-II was issued on 04/05/2010, wherein the final liability arrived at Rs. 1, 72, 21, 030/-- The copy of the said order is attached herewith vide Annexure-2B. Pursuant to the order so received, the assessee adjusted the said liability against the liability frozen (Rs. 2,48,59,319/-). The copy of letter, dated 25/05/2010, informing the Commissioner of Central Excise, Ahmedabad- II about the adjustment of liability and payment of interest thereon is attached herewith vide Annexure-2C. It was a/so intimated that the balance of Rs. 76, 38, 289/- will be utilized in due course. In this context, the copy of Cenvat Credit Register for the period from 01/05/2010 to 30/05/2010 showing the credit entry of Rs. 76,38, 289/- is attached herewith vide Annexure-2D. Pursuant to order received by the assessee, as mentioned above, wherein the final liability of Excise was arrived at Rs. 1, 72, 2 1, 030/-, the assessee was liable to pay the interest thereon amounting to Rs. 18,42,068/-. ....
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....- In this case, PLA account in maintained with - the Excise Department; wherein the debit balance is maintained by making payment through cash or bank. Payment of Excise duty can be made through such account b) By utilizing the Cenvat credit - In this case, Excise duty payable on sales is adjusted against the Cenvat Credit receivable which has been availed on purchases. The records of such Cenvat credit is maintained in RG 23 register as per the Excise law. 73 In the instant case, Cenvat Credit in respect of the excess electricity cleared outside the factory at the contractual rates was in dispute and the same was settled against the assessee; wherein it was held that cenvat credit attributable to inputs used for the generation of electricity passed on / sold out by the assessee to Ahoka Spintex and Arvind Polycot Limited is required to be reversed/paid. The copies of the orders, wherein the said matter was settled have already been submitted vide submission dated 29/01/2014. In view of the orders so received, the assessee has reversed/paid cenvat credit attributable to the generation of electricity sold out by it. Further, the interest thereon has also b....
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....t and the Excise duty payable is adjusted against the modvat credit receivable account- In view of the above, it is submitted that the reversal of cenvat credit is deemed to be payment and therefore the same cannot be disallowed." However, the Assessing Officer has not accepted the submission of the assessee stating that the assessee has reversed the CENVAT credit on the order of excise department and the same was not certified by the auditor in his report in form 3CD. The Assessing Officer was of the view that assessee has not paid excise duty actually, therefore, the same was not allowable u/s. 43B of the Act. Therefore, the claim of excise duty adjusted against securities premium account amounting Rs. 6,51,16,385/- (Rs. 3,67,71,030 + Rs. 2,83,45,355/-) was disallowed and added to total income of the assessee. 11. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has allowed the appeal of the assessee. The relevant part of the decision of ld. CIT(A) is reproduced as under:- "7.3 I have carefully considered the Assessment Order and submission filed by Appellant. The brief facts pertaining to above addition made by Assessing Officer a....
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....nner in which payment of excise duty can be made is either by debiting the PLA account or by utilizing the CENVAT credit. The Assessing Officer has disallowed the CENVAT Credit so reversed on the ground that actual payment has not been made which is a pre-requisite for admissibility for the expenses covered u/s 438 of the Act. It was also submitted that credit means a subsequent claim of set-off for something paid earlier. When CENVAT credit receivable is adjusted against CENVAT Payable/excise duty, it is deemed to be a payment. The main reason for insertion of CENVAT (erstwhile MODVAT) was to ensure that cascading effect of tax does not take place and tax on tax is not levied in the chain of goods produced by a manufacturer being passed through various hands and ultimately reaching the end or final consumer. When the CENVAT credit initially receivable was subsequently reversed, the nature of such reversal would be Excise Duty Payable hence it could be set-off against CENVAT receivable. Adjustment of CENVAT credit deemed to be one of the modes of payment of excise duty under Excise rules and such adjustment made by Appellant is not disputed by Excise Authorities. The appellant reli....
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....n of such CENVAT credit is eligible for deduction under Section 438 or not is already held in favour of Appellant by Hon'ble Mumbai ITAT in the case of Hawkins Cookers Limited v/s ITO 14DTR 206 wherein it is held as under: "In case of where there is no actual payment but adjustable against MODVAT Account, whether the assessee is entitled to claim deduction under section 43B. For this purpose, we would like to refer to the decision of ITAT Special Bench, Chandigarh in the case of Dy. C/T V Glaxo Smithkline Consumer Healthcare Limited 107 ITD 343 (CHD)(SB) wherein it was held that the MODVAT balance as such does not amount to payment. The balance becomes equivalent to payment only at the point of time the assessee exercises his option to set off the balance against the Central Excise liability and not before. It is to note that the issue pertaining to simple adjustment of balance in MODVAT account was before the ITAT Special Bench, Chandigarh. While giving effect of section 145A, the adjustment of balance in MODVAT account was not before the ITAT Special Bench, Chandigarh. In cases where there are statutory compellation under section 145A to give adjustment in closing st....
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....urt to decide the above questions under section 260A in the Income-tax Appeal pending before it (ITA 1683 of 2006)." Thus, it is very clear that Hon'ble Supreme Court has directed Delhi High Court to insider and decide the question of law pending before it along with above question of law and not held that adjustment of unutilized MODVAT Credit of earlier year is not actual payment of excise authorities as observed by Assessing Officer. It is observed that even reference was made to Supreme Court for the case where Assessee has claimed advance payment of excise duty as deduction under Section 43B whereas in the Appellant's case, it has utilized available CENVAT credit balance for making payment of excise duty which actually represents payment of excise duty. It is further observed that above liability of excise is raised in year under consideration was settled by utilizing CENVAT credit during the year under consideration itself and if the contention of the Assessing Officer is accepted, entire utilization of CENVAT credit balance for making payment of excise duty arising out of sale made during the year would be allowed as deduction as there is no 'payment as ....
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....ENVAT credit on the fuel used for the generational of electricity was admissible for electricity use within the factory, for production for example input use for generation of electricity cleared outside the factory is not entitled for credit. Therefore, the assessee had accordingly reversed CENVAT credit of duty availed on input Naptha attributable to the electricity passed on to other entities. However, from March, 2014 the assessee stopped reversing credit and also suo motto took re-credit of CENVAT credit reversed by them earlier for certain period. However, the matter was in dispute and ultimately it was held that CENVAT credit attributable to input used for generation of electricity sold to Ashoka Spintex and Arvind Polycot Ltd. is required to be reversed/paid, therefore, an amount of Rs. 6,51,16,385/- was reversed/paid to excise authority by adjusting CENVAT receivable account. The ld. counsel has further submitted that decision of Hon'ble Supreme Court in the case of Maruti Udhyog Lt, relied upon by the Assessing Officer was not related to the issue pertained to the case of the assessee. The ld. counsel has relied upon the decision of ld. CIT(A). 13. Heard both the sides....
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....ent of excise duty, therefore, assessee is entitled to deduction u/s. 43B of the Act. As referred in para 12 of this order, the facts in the case of the issue are distinguishable from the facts of the case law cited by the Ld. DR in the case of CIT vs. Maruti Vdygo Ltd. 86 taxman as in that case the assessee has claimed advance payment of excise duty as deduction under section 43B whereas in the case of the assessee as elaborated above the assessee has used the CENVAT credit balance for making payment of excise duty. The records of CENVAT credit is maintained in RG 23 register as per excise law and adjustment of CENVAT credit is one of the mode of payment of excise duty under Excise Rule. Considering the above facts and findings, we do not find any infirmity in the decision of ld. CIT(A). Accordingly, this ground of appeal of revenue is dismissed. Ground No. 3 (adding quantum of disallowance u/s. 14A for computing book profit u/s. 115JB of the Act) of Cross Objection filed by assessee 14. At the outset, the ld. counsel submitted that this issue is covered in favour of the assessee as per the decision of Special Bench of ITAT in the case of the ACIT Vs. Vinit Investment Pvt. L....
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.... therefore, after applying the decision adjudicated vide ITA No. 249/Ahd/2016 as supra in this order, the disallowance is restricted to exempt income earned by the assessee to the amount of Rs. 52,37,680/-. Therefore, the appeal filed by the revenue on this issue is dismissed and the appeal of the assessee on this issue is partly allowed. Ground No. 2 (Deleting addition u/s. 14A for computing book profit u/s. 115JB) filed by revenue 19. As the facts and issue involved in ground no. 3 of appeal vide C.O. No. 43/Ahd/2016 Assessment Year 2010-11 are similar as in ITA No. 2057/Ahd/2016 Assessment Year 2011-12, therefore, after applying the decision adjudicated vide C.O. No. 43/Ahd/2016 as supra in this order, this ground of appeal of the revenue is dismissed. Ground No. 3 (Deleting the addition of Rs. 14,06,339/- made u/s. 41(1) of the act) filed by assessee 20. During assessment, the Assessing Officer noticed that assessee has shown sundry creditors of Rs. 506.16 crores. On perusal of the detail filed, the Assessing Officer noticed that assessee has shown sundry creditors in respect of six parties as on 31st March, 2009, 31st March, 2010, 31st March, 2011, 28th Feb, 2015 t....
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....set. However, the Assessing Officer was of the view that purchasing of spare parts to the amount of Rs. 86,89,448/- was of the nature of enduring benefit, therefore, the Assessing Officer has capitalized the same after providing depreciation @ 15% to the assessee. The ld. CIT(A) has allowed the appeal of the assessee after placing reliance on the decision of ITAT Ahmedabad in the case of Banco Product Ltd. ( ITA No. 1105/Ahd/2020 dated 25th October, 2010) 25. Heard both the sides and perused the material on record. Without reiterating the facts as above, the Assessing Officer has disallowed the expenditure claimed by the assessee as incurred on repair/maintenance on plant and machinery. It is clear from the facts as elaborated above in the finding of ld. CIT(A) that the assessee has incurred the expenditure for repairing of existing spare parts as evident from the invoices and detail of contract note mentioned in the finding of ld. CIT(A). The Revenue has not controverted the facts reported in the finding of the ld. CIT(A), therefore, following the decision of Co-ordinate Bench of the ITAT as referred by the ld. CIT(A), we do not find any infirmity in the decision of ld. CIT(A).....
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....re is not a prior period expenditure. It is also argued that even if it is held that expenditure pertains to preceding Assessment Year, same need to be allowed in current year as effective tax rate for both Assessment Years remained the same. On careful consideration of entire facts, it is observed that Appellant provides for 'commission payable on sales at year end and expenditure is debited in the year to which it relates. On the basis of such accounting policy it has provided for aggregate provision of Rs. 1.44 crores in A.Y. 2010-11. The provisions made in A.Y. 2010-11 is reversed in A.Y. 2011-12 on 1st April, 2010 which means that ledger account of commission expenditure is credited by reversal of provision made in earlier year. Against above provision Appellant has received bill of commission agent in current year and such expenditure is debited as commission expenditure in current year and TDS is also deducted. As expenditure of Rs. 59,27,640/- is lower than provision made in earlier year, in fact, Appellant has not claimed such expenditure in current year but same were claimed in earlier year to which it relates. Considering this fact, it is observed that Asses....
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....ent i.e. prior period expenditure. We come to Revenue's case law now. The first one is (2013) 33 taxmann.com 92 (Bang) Bearing Point Business Solutions vs. DCIT and (2013) 35 taxmann.com (Hyd) now Bharat Ventures Ltd vs. CIT deciding the issue in Revenue's favour. We find that these tribunal's decisions do not confirm to different views of various Hon'ble high courts hereinabove. Next case law (2013) 42 taxmann.com 142 (Guj) CIT vs. Gujarat Mineral Development Corporation is an admission order after framing substantial question of law wherein the main case is still pending for final disposal. We observe that this latter order does not settle a ratio. We take into account above stated discussions, relevant facts and case law to conclude that both the lower authorities have wrongly disallowed assessee's claim or prior period expenditure. The same stands deleted. This first substantive ground is treated as allowed." Considering the facts discussed herein above, addition of Rs. 59.27640/- is deleted. This around of appeal is allowed." 28. Heard both the sides and perused the material on record. In view of the decision of Hon'ble Co-ordinate Benc....
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.... pertaining to stock written off against security premium for other division but, confirmed the disallowance on the ground that details regarding fabric division is not submitted. The Appellant has submitted such details before undersigned. However, the Appellant is unable to prove its contention that such details are already on record of Assessing Officer and part of submission dated 2 5 March, 2015. Secondly, from the details submitted, it is difficult to verify the stock written off for Rs. 1,84,89,600/~ being fabric garments. Considering these facts, disallowance made by Assessing Officer for Rs. 1,84,89,600/-is confirmed. This ground of appeal is dismissed." 32. During the course of appellate proceedings before us, the ld. counsel referred its submission reproduced at page no. 53 of the ld. CIT(A)'s order. The ld. counsel has also referred page no. 154 to 157 of the paper book which was submitted during the course of assessment and appellate proceedings before the lower authorities containing complete details and accounts of stock written off . The ld. counsel submitted that ld. CIT(A) has wrongly sustained the erroneous addition made by the Assessing Officer. On other hand....
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....issed. Ground No. 2 (Addition of Rs. 8,86,45,931/- is not to be made while computing the book profit u/s. 115JB of the Act) filed by revenue 37. At the outset, the ld. counsel submitted that this issue is covered in favour of the assessee as per the decision of Special Bench of ITAT in the case of the ACIT Vs. Vinit Investment Pvt. Ltd. (2017) 82 taxman.com 415 wherein it is held that expenses incurred to earn exempt income not to be added for computing book profit u/s. 115JB of the Act. The ld. Departmental Representative is fair enough not to controvert these undisputed fact that issue is squarely covered by the decision of Special Bench. Following the decision of Hon'ble Delhi Special Bench in the case of Vinit Investment Pvt. Ltd. 82 taxman.com 415, we do not find any infirmity in the decision of ld. CIT(A) after applying the finding as per above, the appeal of the Revenue stands dismissed. Ground No. 3 (Deleting the disallowance of Rs. 2,19,738/- on account of depreciation on motor vehicles which are not commercial vehicles) filed by revenue 38. As the facts and issue involved in ground no. 2 of appeal vide ITA. No. 249/Ahd/2016 Assessment Year 2010-11 are similar ....
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.... the provisions of section 36(1)(vii) of the Act. The Assessing Officer has not accepted the submission of the assessee stating that since 2000-01, the assessee has consistently reduced doubtful debt from total debtor by making a provision and the figure reduced from debtor does not match the provisions made by the assessee in the profit and loss account. Therefore, assessee's claim of Rs. 9,54,12,435/- was disallowed and added to the total income of the assessee. 42. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has allowed the appeal of the assessee. The relevant part of decision of ld. CIT(A) is as under:- "5.3. I have carefully considered the Assessment Order and submission filed by the Appellant. The Appellant has claimed deduction of bad debt of Rs. 9,54,12,435/- in return of income. The AO has observed that such amount is not debited in profit & loss account but reduced against provision for bad and doubtful debts in Balance Sheet- The Appellant has submitted its explanation which is reproduced at page No.3 to 5 of Assessment Order which includes details regarding provision for doubtful debts created in earlier Assessment Years, copy o....
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.... provision pertaining to above two companies. So far as mismatch of A. Y. 2008-09 and 2009-10 is concerned, ARs of the Appellant have contended that AO has taken the figure of provision for bad and doubtful debt in profit & loss account from annual accounts of appellant company and same were compared with consolidated Balance Sheet of appellant company which includes figures of all the subsidiaries and associate companies and due to such wrong comparison he has arrived at conclusion that there is mismatch in both the figures. The Appellant has submitted following reconciliation statement as to how figure of Rs. 9,45,12,435/- arrived by it and claimed as bad debt which was a/so submitted before Assessing Officer: STATEMENT OF BAD DEBTS WRITTEN OF AGAINST PROVISION FOR BAD & DOUBTFUL DEBTS Fin. Year Provision as per Return Remark Claimed debt Net debt ABL ACL Total Debt Debt 1815530 Prior to FY 2000 not identifiable 0 2000-01 12334040 864321 13198361 Disallowed in return 0 2001-....
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....lant has given ledger account of parties whose balances were written off in para - 1.1 of its written submission. The Appellant has also submitted statement showing party-wise bad debts along with the year in which corresponding income was booked and explained that all the parties were part of outstanding debtors in respect of sales made in earlier years and such amounts were written off as bad debt in current year. The AO has not disputed these facts which clearly prove that Appellant has written off debt in respective were already offered to tax in earlier year. The provisions of Section 36(1)(vii) of the Act as elaborately discussed in the decision of Hon'ble Supreme Court in the case of TRF 391 states that for claiming bad debt, amount would be written off as irrecoverable in Assessee's account and this condition is already fulfilled by Appellant. The only dispute raised by AO was that Appellant has not debited profit & loss account of current year by amount of bad debt but this contention of AO cannot be accepted as Appellant has debited the profit & loss account in the year in which provision for bad and doubtful debts were created and such amounts wore already disallowed....
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.... provision for doubtful debts appearing in annual accounts are not matching with the figure of provision forbad and doubtful debts in profit & loss account, It is observed that during the course of Assessment Proceedings Appellant has clearly stated that bad debt claimed in return of income pertain to companies being ABL and ACL which were subsequently merged with Appellant from A.Y.2007-08 and these figures were compared by AO either with the stand alone annual accounts of Appellant Company for A. Y.2004-05 to 2006- 07 wherein above referred two companies wore not merged with Appellant and for subsequent year, such figures were compared with consolidated financial statements of Appellant Company which includes accounts of all the subsidiaries and joint ventures. Had AO compared such figures for A.Y.2004-05 to A,Y.2006-07 with the stand alone Balance Sheet of ABL and ACL and from A.Y.2007-08 with stand alone Balance Sheet of Appellant, such figures would have been matched and there would not have been any variation as stated by AO. This claim of Appellant is also apparent from published annual account of Appellant Company and annual accounts of ABL and ACL already filed with the De....
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....after placing reliance on the decision of Hon'ble Gujarat High Court in the case of Arrow Coated Product Ltd. held that there was no discrepancy as alleged by the Assessing Officer and the discrepancy was arised on account of incorrect comparison made by the Assessing Officer. The revenue could not bring any other material to controvert the facts and findings of the ld. CIT(A), therefore, we do not find any infirmity in the decision of ld. CIT(A). Accordingly, this ground of appeal of the revenue is dismissed. Ground No. 2 (Deleting the addition of Rs. 16,08,17,279/- made on account of foreign exchange derivative loss) 44. At the time of assessment, the Assessing Officer noticed that assessee has claimed market to market loss on account of foreign exchange derivatives. On query, the assessee explained that in respect of claim of deduction of loss of Rs. 89.22 crores in respect of derivative/forward contract of foreign exchange that it is in business of manufacturing and trading of textile, readymade garments and tele-communication. In view of its overseas operation on purchase and sale, the assessee company is exposed to risk on account of foreign exchange fluctuation and to ....
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....oss account. The Appellant has explained that above referred loss of Rs. 89.22 crores represented loss arising on re-measurement of forward contracts as on 1st July, 2008 and such loss is arrived at after compiling foreign exchange rate as on 1st April, 2008/rate on the date of contract entered into from 1st April, 2008 and 1sl July, 2008 and foreign exchange rate as on 1s! July, 2008. Tho Appellant has further explained that out of such loss, loss of Rs. 73.13 crores were representing actual realized loss on settlement of derivative contracts which was allowed by AO in Assessment Order. The remaining amount of Rs. 16.08 crores represents loss on account of Marked-to-Market valuation for forward derivative contracts outstanding as on 31st March, 2009. This loss has been disallowed by AO on the ground that such loss is contingent loss and he referred to Instruction No. 3 of 2010, dated 23'" March, 2010 issued by CBDT and contended that Marked-to-Market Loss for derivative transactions cannot be allowed as actual loss. During the course of Appellate Proceedings Appellant has claimed that it has taken forward derivative contracts for hedging of its USD exports by taking U....
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.... of - Assessment year 1998-99 - Whether expression 'expenditure' as used in section 37 may, in circumstances of a particular case, cover an amount which is really a 'toss1, evon though said amount has not gone out from pocket of assessee - Held, yes - Whether loss suffered by assesses on account of foreign exchange difference as on date of balance sheet is an item of expenditure under section 37(1) - Held, yes - Whether accounting method followed by an assessee continuously for a given period of time needs to be presumed to be correct till Assessing Officer comes to conclusion for reasons to be given that said system does not reflect true and correct profits - Held, yes - Whether an enterprise has to report outstanding liability relating to import of raw material using closing rate of foreign exchange and any difference, loss or gain, arising on conversion of said liability at closing rate should be recognized in profit and loss account for reporting period ~ Held, yes" - it is observed that Hon'ble Ahmedabad ITAT in the case of Ac/an/ Enterprises Limited 55 taxmann.com 375 (2015), group case of Appellant has held that 'Where Assessee Company has entere....
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....aterials & collection of book debts. It is submitted that since the appellant company uses the fund and non fund based facilities in foreign currency, the bankers have advised the company to cover up the foreign exchange payment liabilities against the risk of fluctuation in rate of foreign exchange. There is always an inherent risk of fluctuation in the rates of foreign exchange, i.e. the rates of foreign exchange changes between the time of purchase of raw materials and actual payment to suppliers or bank, which depends on the demand and supply position of the foreign exchange in the international market. 8.1 During the previous year, the appellant company has swap its working capital bank liability against purchase of raw-mater/a/s in Dollar Currency to Swiss Frank currency by entering into derivative contracts with hank. The stated logic for such swap from Dollar to Swiss Franc currency was that the Swiss Franc is considered as one of the most stable currency as compared to Dollar and accordingly, the loss, if any on account of foreign exchange fluctuation can be minimized. However, there was fall in the value of Swiss Frank vis-a-vis Dollar and on the balance sheet da....
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....r under consideration, there were 2 unsettled forward contracts aggregating to US $ 76.00 lacs as on the last date of Balance Sheet i.e. 31-03- 2008 to sell the foreign currency at an agreed price at a future date failing beyond the last date of accounting period. The loss is incurred by the appellant company on account of evaluation of these unsettled outstanding forward foreign exchange contracts on the last date of the accounting period i.e. before the date of maturity of the forward contracts. It. was further submitted by the authorized representative that the gain/loss in forward contract for foreign exchange transactions backed by liability in foreign exchange on account of purchase/sales of goods are business losses covered by Section 28 of the Act and not losses in the nature of 'speculation' as defined in section 43(5) of the Act. 8.4 It has been further submitted that in the subsequent year i.e. Financial Year 2008-09 relevant to A.Y.2009-10 on settlement of the said 2 forward contracts, there was a gain of Rs. 1,96,26,284/- which is credited to the Profit & Loss A/c and shown as business income in the financial year 2008-09 relevant to A.Y.2009-10. Hence....
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....count of foreign exchange hedging transactions in forward contracts which is backed by the trading liability of the appellant company on account of import purchases is a business revenue loss and not speculative loss as held by the A.O. The case of the appellant company squarely falls under proviso (a) to Sec. 43(5) of the Act and accordingly, the transactions entered into by the appellant company in respect of hedging of the probable loss on account of fluctuation in the rate of foreign exchange in forward contract are not speculative transactions. The A.O. has failed to bring on record any cogent material evidence is support of his finding that the loss suffered by the appellant company is speculative loss, Therefore, the action of the A.O to disallow the same as speculative loss is unjustified on the facts of the case and accordingly, the disallowance made by him is deleted. The appellant, accordingly, gets the relief of Rs. 5,89,29,812/-." Following the above findings of the CIT(A), the Hon'ble Ahmedabad bench has allowed the issue in favour of assesse. Tho ratio of the above judgment squarely applies to the facts of the present case wherein forward contract was en....
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....ng to Rs. 106,40,81,277/- should be allowed as deduction and same was not allowed by AO. This issue is not emanating from the assessment order and the addition for Rs. 76,08,77,279/- made by the A.O. is already deleted in proceeding para, hence this ground of appeal is infructuous and the same is dismissed. The related ground of appeal is partly allowed." 46. Heard both the sides and perused the material on record. The assessee entered into contracts for hedging its USA dollar export by taking USD-INR forward contracts and total market to market loss was debited at Rs. 89.22 crores. The dispute is pertained to market to market loss of Rs. 16.8 crores as outstanding contract as on 31st March, 2009. The Assessing Officer was of the view that such market to market losses was notional and contingent in nature and same cannot be allowed as per Instruction No. 3/2010 issued by CBDT on 23rd March, 2010. The ld. CIT(A) has deleted the addition after following the decision of Co-ordinate Bench of the Ahmedabad in the case of Adani Enterprises Ltd. (55 taxman.com 375), case of Heavy Metal Tubes Ltd. vide ITA No. 1951/Ahd/2011 dated 30th June, 2014 and decision of DCIT vs. Flite Core Tech.....
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....addition of Rs. 1,14,741/- made on account of disallowance u/s. 40(a)(ia) of the act) filed by revenue 51. During assessment, the Assessing Officer observed that assessee has made payment of Rs. 1,14,741/- as recruitment expenses to Perfect Connection Ltd. without deducting tax on the aforesaid payment. These expenses was disallowed as per provision of section 40(a)(ia). In appeal, the ld. CIT(A) has allowed the claim of expenses holding that same was of the nature of reimbursement of expenditure which does not require deduction of tax. The relevant part of decision of ld. CIT(A) is as under:- "10.3 / have carefully considered the Assessment Order and submission filed by the Appellant. The Appellant has made payment of Rs. 1,14,741/- as Recruitment Expenses of Perfect Connection Limited. The AO has observed that as payment is in nature of contract, Assesses need to have deducted TDS on such payment hence he made disallowance of Rs. 1,14,741/- under Section 40(a)(ia) of the Act. However, on careful consideration of ledger account submitted by Appellant which was also part of submission during Assessment Proceedings that Appellant has reimbursed travelling tickets of candidates....
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....ring both the sides and perusing the decision of the ld. CIT(A) based on the finding of Hon'ble Jurisdictional High Court as supra we do not find any error in the direction of the ld. CIT(A). Therefore, this ground of appeal of the revenue stands dismissed. Ground No. 2 (addition of Rs. 6937768/- on account of provident fund and ESI) filed by assessee 55. As the facts and issue involved in ground no. 4 of cross objection vide CO No. 43/Ahd/2016 Assessment Year 2010-11 are similar as in ITA No. 1960/Ahd/2016 Assessment Year 2009-10, therefore, after applying the decision adjudicated vide CO No. 43/Ahd/2016 as supra in this order, this ground of appeal of the revenue is dismissed. 56. Ground No. 3: - Regarding initiation of penalty is immature at this stage and the same is dismissed. ITA No. 2182/Ahd/2018 A.Y. 2015-16 filed by revenue and ITA No. 1961/Ahd/2018 A.Y. 2015-16 filed by assessee Ground No. 1 (Restricting disallowance u/s. 14A r.w.r. 8D of the act from Rs. 31,61,27,434/- to Rs. 3,07,53,555/- filed by revenue & Ground No. 1 (Sustaining disallowance of administrative expenditure to the extent of Rs. 3,07,53,555/-) filed by assessee 57. During the course of ....
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....CIT Vs. Vineet Investment Pvt. Ltd. [2017] 82 taxmann.com 415 (Delhi-Trib) dated 16.06.2017. (ii) Decision of Hon'ble ITAT Hyderabad in case of Ocean Sparkle Ltd. in ITA no. 438/Hyd/2016 dated 08/06/2018 (iii) Decision of Hon'ble ITAT Kokata in case of Ratansingh Jivandas Suraiya in ITA No. 1691/Kol/2013 dated 22.04.2016 (iv) Decision of Hon'ble ITAT Ahmedabad in case of Sarabhai Holding Pvt. Ltd. in ITA no. 2328/Ahd/2012 dated 11.04.2011 that only those investment are to be considered for computing average value of investment which yielded exempt income during year. With the assistance of the ld. representatives, we have gone through the decision of the Special Bench of the ITAT Delhi in case of ACIT vs. Vineet Investment Pvt. Ltd. (2017) 82 taxmann.com 415 (Delhi-Trib) dated 16.06.2017. In Vineet Investment (P) Ltd. it is held by the Special Bench of the Tribunal that only those investment are to be considered by computing average value of investment which yielded exempt income during the year. We are of the considered view that ratio laid in the above decision is squarely applicable in the instant case. Therefore, we set aside the order of the ld....