TaxTMI 
TaxTMI 
2018 (8) TMI 2114
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.... 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 allied technology. In the course of fulfilling the....
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....ares 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 argued that the lending of monies and investment in shares in these subsidiaries were only meant for the purpose of business and if th....
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....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 retaining those investments in the balance sheet and had sought to write off the valuation difference, being the difference between the purchase price ....
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....n 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 constitute represent stock in trade, was accepted. Question No.2 is thus answered in favour of the assessee and against the revenue. 5. Question Nos. 1 and 3 challenge the conclusions....
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.... 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. Moreover, in that case, the value of investments were completely written off in the books and deduction claimed for write off. Whereas in the instant case, the assessee continues to show the value of investme....
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....on-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 (P) Ltd 32,00,000 ------------------ 32,03,000 Provision made for Loans 31.3.08 31.3.09 Difference Webel Consumer Electronics Ltd 16,29,10,517 12,68,32,375 3,60,78,142 Webel Communic....
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....ly, 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 debtor in its books or a mere reduction in the "Loans and Advances Account: or Debtors to the extent of the provision for bad and doubtful debt is sufficient? The ld AR argued that the Hon'ble Apex Court had held that even if the provision is made and the same is reduced from the value of loans & advances and debtors, and the figures depicted in the balance sheet is net of such provision on the assets side of the balance sheet, the assessee would be entitled for deduction towards the provision made. Accordingly, he ar....
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....sessee 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 Explanation 1 to section 115JB of the Act with retrospective effect from 1.4.2001 by the Finance (No. 2) Act, 2009. Accordingly, we hold that the addition of Rs 4,98,23,842/- while computing the book profits u/s 115JB of the Act by the ld AO is in order. The Ground No. 2 raised by the assessee for the Asst Year 2008-09 is dismissed. 4. At the time of hearing, the ld AR stated that the Ground No. 3 raised by the assessee is not pressed for the Asst Year 2008-09. The same is reckoned as statement from the Bar and accordingly, the....
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....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 attributable to earning rental income. The ld AO also granted standard deduction u/s 24(a) of the Act in respect of expenses towards rental income under the head 'income from house property'. 7.2. The assessee stated before the ld CITA that the watch and ward expenditure incurred by the assessee does not require to be apportioned towards earning of rental income in as much as both the assessee as well as the tenant had appointed separate personnel to provide security of their respective areas. It was submitted that the gardening activity is carried on only in the premises used by the assessee for its bu....
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....s 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 accounts of the assessee by clearly stating as to why the claim of the assessee that no expenditure was incurred for earning exempt income, was incorrect. It is axiomatic that this is a condition precedent for the ld AO before invoking the computation mechanism provided in Rule 8D(2) of the IT Rules. In this regard, the Hon'ble Supreme Court in its recent decision in the case of Maxopp Investment Ltd vs CIT reported in (2018) 91 taxmann.com 154 (SC) had held as under:- 41. Having regard to the language of section 14A(2) of the Act, read with Rule 8D of the Rules, we also make it clear that before applying the theory of ap....
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....ce 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). The ld AR also argued that the assesee had earned huge interest income which is much more than the interest paid. Hence there is no positive interest expenditure available for making disallowance thereon in second limb of Rule 8D(2) of the IT Rules. In support of this proposition, he placed reliance on the co-ordinate bench decision of this tribunal in the case of DCIT vs Trade Apartment Ltd in ITA No. 1277/Kol/2011 dated 30.3.2012 for Asst Year 2008-09. In any case, he argued that only investments which had yielded dividend income should be considered for working out the disallowance under second and third limb of Rule 8D(2) of the IT Rules....