TaxTMI 
TaxTMI 
2015 (1) TMI 1499
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....essed u/s 143(I)(a), vide intimation dated 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....
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....the conclusion that the revised return of income is not filed strictly in terms of 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 1....
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....he AO has processed the revised return u/s 143(I)(a). The revised return has not been rejected by him. Under these circumstances, 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 c....
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....s relating to such investments amounting to Rs. 34,51,733/- and deducted the same from the dividend received to calculate the deduction u/s 80M on net income basis resulting in a disallowance 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 :- ....
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....,964,490 D March 31, 1991 219,437,407 35,758,971 183,678,436 E March 31, 1992 292,891,077 52,451,305 240,439,772 F March 31, 1993 396,491,000 83,937,000 312,439,772 G March 31, 1994 732,879,000 140,077,000 592,802,000 H March 31, 1995 1,006,904,000 500,475,000 506,429,000 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 hi....
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.... c) It is not established whether loans are out of surplus funds or out of borrowed funds and the nexus is not established. At para 10.6 held as follows :- "10.6 I have considered the matter carefully. The jurisdictional High Court in CIT vs. Motor General Finance Ltd. (2002) 254 ITR 449 pointed out that section 114 of the Indian Evidence Act, 1870 left no option to the Tribunal 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 furt....
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....ses incurred for obtaining secured loan from IFC Washington and FMO Netherlands, which was deferred in the books of account and was not debited to the Profit and Loss account of assessment year 1996-97. However, as the same has been incurred and actually paid during the current assessment year, the appellant claimed the same as an allowable deduction in the return of income. 12.2 The AO rejected the claim of the appellant and disallowed the aforesaid expenses on the ground that the same 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 ho....
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....wed as expenditure in the next assessment year, i.e. 2007-08. 15. The aforesaid addition has been deleted by the Tribunal and we are in agreement with their findings. Before, we elucidate, it will be relevant and important to reproduce the reply of the assessee, which for the sake of convenience is reproduced below : "Till 31st March,2005 sales force compensation, card acquisition cost (sales service provider expenses, incentives related to card acquisition, credit investigation cost, application printing 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....
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.... standards. Reference can be made to Kedarnath Jute Mfg. Co. Ltd. versus CIT, (1971) 82 ITR 363 where it was held, "..., We are wholly unable to appreciate the suggestion that if an assessee under some misapprehension or mistake fails to make an entry in the books of account and although under the law, a deduction must be allowed by the Income Tax Officer, the assessee will lose the right of claiming or will be debarred from being allowed that deduction. Whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating 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 ....
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....penditure in question is undisputedly in the revenue field we apply the principles laid down by the Jurisdictional High Court and allow the claim of the assessee. Thus ground of the assessee is allowed. 17. Ground No. 7 is on the restriction of claim of depreciation in respect of commercial vehicles given on lease, on the ground that the assessee is not engaged in the business running trucks on hire. The first appellate authority has rejected the claim of the assessee that the assessee has leased the commercial vehicles to various transport operators, who inturn used these vehicles in the business 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 ....
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....36 ------- Datar Switchgear Ltd. Nasik 14,988,500 7,494,250 6,294,250 Retained GE Pioneer Alloy Casting Ltd. Tamil Nadu 2,500,000 2,500,000 2,256,449 Retained GE High Temp Furnace Ltd Bangalore 3,062,717 1,531,359 1,235,495 Retained GE 20. After hearing rival contentions, we find that the genuineness of the purchase and lease back transactions have been upheld by the ITAT the assessee's own case for the asstt. year 1994-95 and 1995-96. The decision of the Tribunal, admittedly, has been accepted by the revenue and no further appeal has been filed. 21. Out of the six sale and lease back transaction, except in the case of PSEB and Oswal Sugars Ltd., the AO disallowed the 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 extra....
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.... CIT vs. Cosmos Films Ltd. 338 ITR 226 (Delhi) at para 20 to 22 held as follows:- "20. We also note that in Industrial Development Corporation of Orissa Ltd. (2004) 268 ITR 130 (Orissa), the Orissa High Court was dealing with a case which was similar to the one before us where, in place of the Haryana State Electricity Board, it was the Orissa State Electricity Board (OSEB). The said High Court observed that if the sale and lease back agreement between the assessee and the OSEB indicate that the assessee had purchased the plant and machinery from the OSEB for a price and had leased out the same to the OSEB on lease rent, the Revenue Department cannot discard the said sale and lease back agreement on the ground that the underlying motive of the assessee to enter 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 colou....
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....ance of the claim of the assessee with regard to exclusion from income of principal amount recovered amounting to Rs. 2,55,39,269/- on lease transactions which were earlier considered as finance transactions by the AO. In the earlier asstt. years, the assessee had offered to tax, the lease rental received, including the principal portion, by treating the transactions in question as lease transactions. Lease transactions were considered as finance transactions by the AO and the depreciation claimed was disallowed. Consequently the principal portion of the lease transactions, which were offered to tax had to be reversed. The assessee's claim is that such consequential benefit has to be allowed. The Ld. Counsel submitted that, he is not pressing this ground of appeal. In view of our 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) exclu....
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....and the High Court rejected the respective applications of the appellant for reference. On appeal to the Supreme Court." 29. Respectfully following these decisions we uphold the contentions of the assessee that the Ld. CIT(A) should have considered the claim of the assessee on merits. Hence we set aside the order to the file of the first appellate authority for fresh adjudication, on merits, in accordance with law. In the result, ground No.10 is allowed for statistical purpose. Hence the appeal of the assesee is allowed in part. ITA No. 3160/D/2004 Asstt. year 1997-98 30. Ground No. 1 is general in nature. 31. Ground No. 2 is against the adhoc disallowance of Rs. 30 lacs out of total interest paid during the year, on the ground that interest free loans were given to the subsidiary of the assessee company. A similar issue on identical facts was considered by us while disposing off ground No. 5 in ITA No. 3159/D/09 for the asstt. year 2006-07. Consistent with the view taken therein and for the same reasons we allow this ground of the assessee. 32. Ground No. 3 is against the restriction of claim of depreciation on commercial vehicles given on lease....