TaxTMI 
TaxTMI 
2015 (1) TMI 1499
X X X X Extracts X X X X
X X X X Extracts X X X X
....23.1.98, wherein the loss was determined at Rs. 14,85,81,522/-, by making prima facie disallowance of Rs. 13,30,503/-. Subsequently the assessee on 21.8.1997, filed a revised return of income, declaring loss of Rs. 15,89,59,000/- . This revised return was processed u/s 143(1)(a) wherein a similar prima facie disallowance of Rs. 13,30,503/- was made. 2. For the asstt. year 1997-98, the assessee filed its return of income on 21.8.1997, declaring a loss of Rs. 11,16,30,770/-. Thereafter the assessee filed a revised return of income, claiming credit of additional TDS and declaring the same loss as claimed in the original return of income. This return was processed u/s 143(IB). Later the assessee filed yet another revised return of income on 30th March, 1999, declaring a revised loss of Rs. 12,28,97,021/-. 3. For the asstt. year 1996-97 the AO determined the total income of the assessee at Rs. 4,66,16,331/- inter alia disallowing depreciation claimed etc. For the asstt. year 1997-98 the AO determined the total loss of Rs. 8,49,37,201/-, after making certain disallowance. Aggrieved the assessee carried the matter in appeal before the first appellate authority for both the assessment ye....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Section 139(5). Thereafter at para 2.8 held as follows :- "2.8. The contention of Ld. AR that return filed u/s 139(5) is as good as return filed u/s 139(3) of the I.T. Act does not hold good. The law has undergone a change after the finance Act 1987 w.e.f. 1.4.1988, which requires the loss return to be filed within the time allowed under section 139(3) by way of a specific addition of reference to section 139(3) in section 80 for the requirement of the right to carry forward such loss, so that this decision can no longer be of any assistance to the tax payers to disregard their duty enjoined by law to file the return in time, if they want to avail of the benefit of loss to be carried forward. The AO is therefore right in disallowing loss to be carried forward hence this ground of appeal stands rejected." 8.3. The contentions of the assessee are that as per section 139 (3), once a return of loss is filed within the time allowed u/s 139(5), all the provisions of the Act will apply as if , the return of loss is a return of income filed u/s 139(1) of the Act. Thus it was argued that section 139(5) of the Act will apply to the return of loss filed u/s 139 (3) of the Act. Neither 13....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ances, it is not appropriate for the CIT(A) to hold otherwise. 8.9. The second issue is on the right of the assessee to carry forward of loss. The Ld. Counsel for the assessee relied upon the decision of Hon'ble Madras High Court in the case of CIT vs. Periyar District Co-operative Milk Producers Union Ltd. The Hon'ble Madras High Court has held as follows :- "A bare perusal of sub-sections (3) and (5) of section 139 of the Income-tax Act, 1961, more particularly the provision contained in section 139(3), makes it clear that a return of loss filed under section 139(3) may be filed within the time allowed under section 139(1). Once such a return is filed, all the provisions of the Income-tax Act shall apply as if such return has been filed under section 139(1). This position is clear from the expression"... all the provisions of this Act shall apply as if it were a return under sub-section (1)." In other words, a return filed under section 139(3) is deemed to be a return filed under section 139(1). The provision contained in section 139(3) makes it clear that all the provisions of this Act shall apply to such a return as if it were a return under section 139(1). In view of such a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sallowance of Rs. 34,51,733/-. The AO's observations at para 6 of the assessment order are reproduced as under:- "Assessee has not allocated any part of the financial/interest expenses towards dividend income and deduction u/s 80M has been claimed on gross dividend income. In fact, as gross total income is at negative figure, no deduction u/s 80M actually claimed by assessee, but according to him, deduction of Rs. 61,66,625/- u/s 80M equal to gross dividend income other than UTI dividend is available to him. In earlier years, Rs. 85,62,623/- out of interest paid was allocated towards investment of amount of Rs. 34,51,733/- shall be allocated towards investments of Rs. 5.5. crores in shares and thus net dividend income shall be Rs. 27,14,892/- (61,66,625/- - 34,51,733/-). Therefore, deduction u/s 80M shall be available to maximum of Rs. 27,14,892/- depending upon gross total income." 9.1. The finding of the first appellate authority in para 3.3 which is extracted for ready reference :- 3.3 "The learned AR contended that the units of UTI were held by the appellant in compliance with the statutory liquidity requirements (SLR) prescribed under rule 12 of the NBFCs(RBI) Direction....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 500,475,000 506,429,000 I March 31, 1996 1,819,990,000 400,894,000 1,419,096,000 J March 31, 1997 1,949,358,000 475,984,000 1,473,374,000 A perusal of the chart demonstrates that the annual internal accruals are much higher than the investments made during that particular year. Under these circumstances the presumption is that the investments have been made from internal accruals and that no borrowed funds have been made for these investments. The Hon'ble Bombay High Court in the case of HDFC Bank Limited in Income Tax Appeal 330 of 2012 judgment dated 23rd July, 2014 followed its own judgment in the case of CIT vs. Reliance Utilities and Power Ltd. (2009) 313 ITR 340 (Bombay) and page 6 held as follows:- "In the present case undisputedly the assessee's capital, profit reserves, surplus and current account deposits were higher than the investments in the tax free securities. In view of this factual position, as per the judgment of this court in the case of Reliance Utilities and Power Ltd. (supra) it would have to be presumed that the investments made by the assessee would be out of interest free funds available with the assessee". Respectfully following the propo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al except to decide against the assessee on its claim that interest free loans given to a subsidiary company out of proprietary funds and not borrowed funds in the facts of the case. When the AO asked the assessee to prove the same with reference to the bank accounts, they were not produced. It is in this context, it was found that the estimated interest disallowance should have been confirmed by the tribunal. Following the above decision of the Jurisdictional High Court, I hereby uphold the disallowance made by AO." 12. After hearing rival contentions we find that the assessee has promoted and formed the subsidiary companies, to undertake stock-broking and asset management activities. The Ld. AR contended that the assessee is a financial service company and in order to promote its business further, it had to undertake the entire gamut of financial services, and hence this subsidiary companies are formed, as the existing regulations required separate companies to be set up for this purpose. At para 10.4 of the CIT order the submissions of the assessee that the net owned funds and internal accruals are far in excess of the investment in question is recorded. We extract the same fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ame is deferred in the books of account and has not been debited in the Profit and Loss account of the assessment year 1996-97." 15. After hearing rival contentions we agree with the contentions of the Ld. Counsel for the assessee that there is no concept of deferred revenue expenditure under the Income Tax Act. In the case of CIT vs SBI Cards & Payment Services Pvt. Ltd. In ITA Nos. 603 and 604 of 2014 judgment dated 29.9.2014 the Hon'ble Delhi High Court held as follows:- "13. The Delhi High Court has repeatedly held that advertisement expenditures in the present day context should normally be treated as revenue expenditure, unless there are special circumstances and reasons to hold that the expenditure was capital in nature. The reason is that the advertisements do not have a lasting and long term effect and the memory of the customers or targeted audience is short lived. The advertisements fade away and do not have an enduring impact. If there is a lack of advertisement by one, the vacuum and space is taken over by others with benefit and advantage to the detriment of the first. Reference can be made to CIT vs. Salora International Ltd. (2009) 308 ITR 199 (Delhi) and the su....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nting cost), consumption of plastic cards, and delivery charges were recognized on an upfront basis. During current year (with effect from 1 April, 2005), the Company has changed its policy to recognize productive sales force compensation, card acquisition cost, consumption of plastic cards and delivery charges over a period of one year as this more closely reflects the period of which the fee relates to. As a result of this change in accounting policy, profit before tax for the current year is higher by Rs. 19,64,39,035/-. 9.2 This accounting treatment is being explained by the under-noted illustration. " If card-marking expenses of Rs. 1000/- has been incurred in the month of July 2005, then as per the above accounting policy, the amount to be charged to the Profit & Loss Account for the Financial Year 2005-06 would be computed as under : =Rs. 1000*9/12 = Rs. 750 The balance amount to be deferred & claimed in the next Financial Year i.e. 2006-07 would be calculated as under : =Rs. 1000*3/12 =s. 250" 16. It is clear from the aforesaid reply and is an accepted position that till the assessment year in question, sales force composition, card acquisition costs et....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lating thereto and not on the view which the assessee might take of his rights nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter...." In Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT (1997) 227 ITR 172 at page 184, it was observed, ""It is true that this Court has very often referred to accounting practice for ascertainment of profit made by a company or value of the assets of a company. But when the question is whether a receipt of money is taxable or not or whether certain deductions from that receipts are permissible in law or not, the question has to be decided according to the principles of law and not in accordance with accountancy practice. Accounting practice cannot override Section 56 or any other provision of the Act. As was pointed out by Lord Russel in the case of B.S.C. Footwear Ltd. (1970) 77 ITR 857, 860), the Income Tax law does not march step by step in the footprints of the accountancy profession." It was held by the Bombay High Court in Commissioner of Income Tax versus Bhor Industries Limited (2003) 264 ITR 180, "...If (sic, It) is well settled that, ordinarily, revenue expenditure, whi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ss of running them on hire. Admittedly this issue is covered in favour of the assessee by the decision of Tribunal in the assessee's own case for the asstt. year 1994-95 and for the asstt. year 1998-99, which is reported in 113ITD 22 (Delhi). The prepositions laid down by the Tribunal in these decisions, are in consonance with, the propositions laid by the Jurisdictional High Court in the case of CIT vs. MGF (India) Ltd. 285 ITR 142 (Delhi) and the judgment of the Hon'ble Supreme Court in the case of M/s. ICDS vs. CIT reported in (2013) 350 ITR 527 (SC). 18. Hence, consistent with the view taken by us for the asstt. year 1994-95 and 1998-99 we allow this ground of the assessee. 19. Ground No. 8 is on disallowance of depreciation amounting to Rs. 8,65,25,609/- on assets which are purchased and leased back. The Ld. CIT(A) has brought out the facts at para 14.1 to 14.3 of his order. The same is reproduced hereunder :- "14.1 The above grounds deal with the disallowance of depreciation amounting to Rs. 4,00,00,000/- on certain assets purchased from and leased back to M/s. PSEB and RS. 3,90,31,359/- (net of Principal recovery) on assets purchased and leased back to some other parties....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e depreciation by questioning the commercial expediency of the transaction. This ground of disallowances is not legally correct. When the genuineness of the transaction is not doubted, disallowance of depreciation is not warranted. The AO does not have the jurisdiction to question commercial expediencies and that too is in a transaction between unrelated parties. As regards transaction of the PSEB and Oswal Sugar Ltd. the submissions of the assessee counsel are extracted at para 14.4 of the CIT(A) order:- "14.4 With regard to the transaction with PSEB and Oswal Sugar Ltd., the AR submitted as follows :- The transaction in question is admittedly a sale and lease back transaction where the lessee was already owning the assets which it sold to the appellant and obtained back on lease. The sale took place exclusively for the purpose of leaseback. The two transactions i.e. sale and lease back are distinct transactions and therefore cannot be treated as one transaction. The Appellant had first entered into an agreement to purchase the assets from various parties. The AO has failed to take cognizance of the fact that both the transactions are separate and independent and therefore ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nter into the said transaction was to reduce its income-tax liability. The Orissa High Court observed that the Revenue could, however, discard the said transaction only if there were materials or evidence before it to show that the intention of the parties were different from what had been incorporated in the sale and lease back agreements and that the transaction was really a sham and dubious transaction and was a colourable device. We are in complete agreement with these observations of the Orissa High Court in the case of Industrial Development Corporation of Orissa Ltd. (2004) 268 ITR 130 (Orissa). We are also in agreement with the conclusion of the said High Court that in such cases, the court would have to find out as to what was the real intention of the parties in entering into the sale and lease agreement and that such intention has to be gathered from the words in the said agreement in a tangible and in an objective manner and not upon a hypothetical assessment of the supposed motive of the assessee to avoid tax. We have already indicated that the intention gathered from the documents on record shows that the ownership and title of the said equipment had been transferred ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....decision in ground No. 8 where we accepted this claim of the assessee that these transactions are lease transactions. In the result this ground is dismissed. 26. Ground No. 10 is against the finding of the first appellate authority that certain disallowance made by the AO and challenged by the assessee before the first appellate authority, are not arising from the asstt. order. These issues are a) exclusion of principal recovery amounting to Rs. 1,55,70,780/- from the lease rentals in respect of transactions offered as finance transactions under the Voluntary Disclosure of Income Scheme (VDIS 1997) 2) b) exclusion of net income amounting to Rs. 1,22,77,685/-, which had been offered to tax under the VDIS 1997.c) claim of long term capital loss amounting to Rs. 7,66,867/- d) claim of deduction of Rs. 77,45,779/- in respect of income of non-performing assets, which is not recognised as income in the books of accounts, by following the prudential norms of RBI. 27. The Ld. CIT(A) had at para 18.3, 19.4 and 20.7 held that the issue have not been discussed by the AO and do not emanate from in the asstt. order for the year under consideration. He dismissed the same. The Ld. Counsel for t....