TaxTMI 
TaxTMI 
2018 (8) TMI 2114
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....nd disposed off by this common order for the sake of convenience. 2. DISALLOWANCE OF INVESTMENTS WRITTEN OFF Ground No. 1 for Asst Year 2008-09 in Assessee Appeal Ground No. 1 for Asst Year 2009-10 in Assessee Appeal The facts of Asst Year 2008-09 are taken up for adjudication and the decision rendered thereon with regard to this issue would apply with equal force for Asst Year 2009-10 also except with variance in figures. 2.1. The brief facts of this issue are that the assessee is a Government Company. The assessee is the nodal agency of Government of West Bengal for development of Information Technology (IT) and Information Technology Enabled Services (ITES) sectors in the State of West Bengal. The assessee had filed its return of income for the Asst Year 2008-09 on 29.9.2008 declaring total income of Rs Nil and thereafter filed a revised return u/s 139(5) of the Act on 31.3.2010 declaring total income of Rs 2,14,06,844/-. The assessee company was formed with the main object to develop electronic and allied industry through establishment of manufacturing, research and development activities and such other means as will be conducive to the growth of electronics and ....
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....vestments in subsidiaries, assisted sectors and joint ventures. During the year under consideration, the assessee acquired the shares of the aforementioned companies from the outsiders at different prices and sought to value the same at Re 1 in its balance sheet under the head 'Investments'. The difference between the purchase price and Re 1 was sought to be written off due to permanent reduction in the value of investments as there is no scope for recovery of these investments from those companies in view of erosion of their net worth. He further stated that these further investments were made during the year in those companies only to make those subsidiaries as wholly owned subsidiaries of the assessee company. This was done in order to have absolute control over those companies to proceed to enter into joint venture projects with renowned industrial houses for promotion of IT and ITES industry in the State of West Bengal. The ld AR pleaded that the very purpose of formation of these subsidiaries itself were for the purpose of the business of the assessee company as its main endeavour is to promote the growth of electronics industry in the State of West Bengal. Hence it was argue....
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....d undertake the formation of any institution or company for the purpose of acquiring all or any of the property and liabilities of the company or for any other purpose which may seem directly or indirectly calculated to benefit this company or form subsidiary company or companies. To carry on any business which may seem capable of being carried on conveniently with business or object of the company and to acquire any interest in any industry or undertaking." 2.7.1. In fulfilling the aforesaid objectives, the assessee company had made certain investments in subsidiaries, wholly owned subsidiaries, assisted sectors and joint venture companies. Hence it could be safely concluded that the investments made thereon in equity shares and preference shares were meant for the purpose of business of the assessee company in consonance with its objects and purpose of formation of the assessee company. It is not in dispute that the subsidiaries in which the assessee had made investments had huge losses and had eroded their net worth. When there is a diminution in the value of these investments made , the assessee had resorted to value those investments in its books at Re 1 for the purpose of ....
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.... the main objects to be financing of long or medium term loans to any concern engaged or proposed to be engaged in businesses/activities such as manufacturing, processing, refrigeration of goods, exploitation of mineral resources, generation or distribution of electricity, shipping, transport or promotion of industrial growth etc. It also provides for the underwriting or subscription in shares, debentures or other securities of industrial concerns and the rendition of financial assistance by various modes including loans, guarantees and under writing subscription. The assessee was thus incorporated solely for the purpose of ensuring and facilitating growth and development of industries in the state of Tamilnadu. Investment by way of subscription to shares is solely on account of the under writing operations. Such being the position, the investments are of the nature of stock-in-trade and cannot be held to be otherwise. In fact, this aspect of the matter was decided by the Income Tax Appellate Tribunal in the assessee's own case in respect of assessment year 1970-71 wherein, by a well reasoned order dated 14.3.1975, the stand of the assessee that investment in companies would co....
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....poration vs DCIT reported in 263 ITR 332 (Cal). In that case, the assessee was a State Financial Corporation and had invested in shares of various companies to the tune of Rs 14,05,785/- and the assessee wrote off the above sum as a bad investment in Asst Year 1992-93 on the ground that there was no possibility of getting any amount against the investment in shares of those companies. The Tribunal in that case had held that those investments by the assessee were not loans and the assessee never treated the shares as stock in trade. The Tribunal further held that if the shares were sold at a lesser value than the acquiring value, as and when that might be done, the assessee might be eligible to claim loss arising out of such sale. This was upheld by the Hon'ble Jurisdictional High Court in favour of the revenue. The SLP filed by the assessee before the Hon'ble Supreme Court was also dismissed. In our considered opinion, this judgement is distinguishable on facts in as much as the assessee before us had not made any investments in shares of subsidiaries as a pure and simple investment. It was done as a measure to promote the growth of electronics industry in the State of West Bengal.....
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....the financing could be by way of lending to parties by way of loans or by way of investing in shares of those companies. In effect the assessee had only brought down the value of investments on the ground of non-realisability of the value thereon. Hence we hold that the assessee is entitled for deduction in respect of write off of investments by respectfully following the decision of Hon'ble Madras High Court supra. Accordingly, the Ground No.1 raised for the Asst Years 2008-09 and 2009-10 by the assessee is allowed. 3. DISALLOWANCE OF PROVISION FOR INVESTMENT, LOANS & ADVANCES WHILE COMPUTING BOOK PROFITS U/S 115JB OF THE ACT- RS 4,98,23,842/- Ground No. 2 of Asst Year 2008-09 in Assessee's Appeal The brief facts of this issue are that the assessee debited a sum of Rs 4,98,23,842/- towards provision for investments and loans and advances in its profit and loss account and claimed the same as deduction while computing the book profits u/s 115JB of the Act. The break up of the said provision amounts are as under:- Provision made for Investments Invt in 300 shares of Zenerex Pvt Ltd 3,000 Invt in 320000 shares of Millenium Information Systems ....
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....ith retrospective effect from 1.4.2001 in clause (i) as under:- (i) the amount or amounts set aside as provision for diminution in the value of any asset. 3.2. This action of the ld AO was upheld by the ld CITA. Aggrieved, the assessee is in appeal before us. 3.3. The ld AR placed reliance on the decision of the Hon'ble Supreme Court in the case of Vijaya Bank vs CIT reported in 190 Taxman 257 (SC) wherein the assessee bank argued as under:- Once a provision stood created and , ultimately, carried to the balance sheet wherein Loans and Advances or Debtors depicted stood reduced by the amount of such provision, then, there was actual write off because, in the final analysis, at the year end, the so-called provision does not remain and the balance sheet at the year end only carries the amount of loans and advances or debtors, net of such provision made by the assessee for the impugned bad debt. Based on this, the Hon'ble Apex Court considered the following question for consideration :- The second question which arises for determination in these civil appeals is, whether it is imperative for the assessee bank to close the individual account of each deb....
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....o be discussed here. In the said decision, we find that the Hon'ble Gujarat High Court had given a finding that the provision in that case actually tantamount to write off of the debt and the same was reduced from the total value of assets in the balance sheet. Whereas, in the instant case, it is not in dispute that the assessee had made only provision for doubtful investments and doubtful loans and advances in the sum of Rs 4,98,23,842/- which was not written off in the books by the assessee. Infact we find that the assessee had voluntarily added back the said provision of Rs 4,98,23,842/- under the normal computational provisions of the Act and had not disputed the same before the revenue. Hence it could be safely concluded that the amounts provided towards doubtful investments and advances were only in the nature of mere provisions and not write off. Accordingly, the decision of Hon'ble Gujarat High Court would not come to the rescue of the assessee. In the instant case, the provisions of section 115JB of the Act, being a complete code in itself having a deeming fiction , need to be strictly construed and and amendment has been brought by way of inserting clause (i) in Explanati....
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....ssee for the purpose of its own business, disallowance of 100% of depreciation would be improper. He observed that in Asst Year 2007-08 , the assesee itself had shown 75% of the expenditures as attributable to rental income. Taking that as a benchmark, the ld AO proceeded to apportion the following expenditure at 75% as attributable towards rental income :- Head of Expenditure Total Amt Disallowance made by assessee Disallowance to be made @ 75% Repairs & Maintenance (Building) 1,02,90,657 52,24,525 77,17,927 Municipal Tax 5,10,205 5,10,205 3,82,653 Depreciation 46,06,824 46,06,824 34,55,118 Watch & Ward 64,68,493 0 48,51,369 Gardening Expenses 16,46,380 0 12,34,785 ------------------------- ------------------------- Total 1,03,41,554 1,76,41,852 ------------------------- ------------------------- The ld AO recomputed the entire income of the assessee by starting from Net Profit as per Profit and Loss Account and then proceeded to make disallowance of Rs 1,76,41,852/- under the head 'income from business' towards aforesaid expenditure att....
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....hence the decision rendered thereon hereinabove would apply with equal force for this Asst Year also except with variance in figures. 10. The Ground No. 2 raised by the assessee was stated to be not pressed by the ld AR. The same is reckoned as a statement from the Bar. Accordingly, the Ground No. 2 raised by the assessee is dismissed as not pressed. 11. Disallowance u/s 14A of the Act read with Rule 8D of the IT Rules Ground Nos. 3(a) to 3(c ) of Assessee Appeal in Asst Year 2009-10 The brief facts of this issue are that the assessee was in receipt of dividend income of Rs 28,09,924/- which was claimed as exempt in the return of income. The assessee claimed that no expenditure was incurred by it for earning dividend income. The ld AO applied the provisions of second and third limb of Rule 8D(2) of the IT Rules and made disallowance of Rs 6,93,046/- in the assessment. This action of the ld AO was upheld by the ld CITA. Aggrieved, the assessee is in appeal before us. 11.1. We have heard the rival submissions. We find that the ld AR argued that the ld AO did not record any satisfaction as mandated in Section 14A(2) and Rule 8D(1) of the Rules having regard to the accou....
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....Rules. In view of the above the amount of expenditure is calculated below as per Rule 8D of the I.T. Rules. 11.4. We hold that the above referred para does not reflect the recording of satisfaction by the ld AO as mandated in section 14A(2) / 14A(3) of the Act read with Rule 8D(1) of the Rules in as much as the ld AO had not referred to the accounts of the assessee by identifying individual account heads and link the same with the investments made by the assessee so as to conclude whether at all any expenditure could be attributable towards such exempt income. In the absence of any such recording of satisfaction, we hold that no disallowance u/s 14A of the Act read with Rule 8D of the Rules could be made by the ld AO. 11.5. We also find that that there is no finding given by the ld AO that the borrowed funds were utilized by the assessee for making investments which in turn had yielded dividend income which was claimed as exempt. We find that the assessee is having sufficient own funds as is evident from the balance sheet. Reliance in this regard is placed on the decision of Hon'ble Bombay High Court in the case of Reliance Utilities and Power Ltd reported in 313 ITR 340 (Bom....