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2024 (3) TMI 90
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....Appeals) 9, Chennai dated 23.06.2017 in I.T.A. No.14/CIT(A)-9/2008-09 for the above mentioned Assessment Year is contrary to law, facts, and in the circumstances of the case. 2. The CIT (Appeals) erred in confirming the disallowance of depreciation on the property at Nandanam in the computation of taxable total income without assigning proper reasons and justification. 3. The CIT (Appeals) went wrong in recording the findings in this regard in para 9.1 of the impugned order without assigning proper reasons and justification. 4. The CIT (Appeals) erred in partly sustaining the addition of notional expenses quantified at 2% of the exempted income on the application of section 14A of the Act in the computation of taxable total income without assigning proper reasons and justification. 5. The CIT (Appeals) went wrong in recording the findings in this regard in para 4.1 of the impugned order without assigning proper reasons and justification. 6. The CIT (Appeals) erred in sustaining the loss suffered in promoting joint venture companies as capital loss as against the claim for deduction as revenue/business loss in the computation of taxable t....
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....d. The Assessing Officer, observed that as per the provisions of Income-tax Act, 1961, no depreciation can be allowed on landed property. Therefore, called upon the assessee to produce the details of land cost and building cost to workout depreciation and allow as per law. The assessee had not furnished any details. Therefore, the Assessing Officer has taken land cost of the area where the building of the assessee was located as per State Registration Department of Government of Tamilnadu and worked out cost of land at Rs. 28,08,493/-. Since, the assessee has claimed depreciation @ 10% on land and building, depreciation relates to cost of land at Rs. 2,08,580/- has been disallowed and added back to the returned income. On appeal, the ld. CIT(A) has confirmed additions made by the Assessing Officer. 4.1. The ld. Counsel for the assessee, submitted that the issue of depreciation on land has been resolved with the Revenue and the claim of said depreciation on the UDS in land relating to the flat under consideration was reversed and added back to the total income in the computation of taxable income for the assessment year 2012-13 and the same has been considered by the Assessing Of....
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....en the same can be excluded for computing total income. Thus, we direct the Assessing Officer to verify the claim of the assessee and if the Assessing Officer found that the claim of the assessee is correct, then we direct the Assessing Officer to exclude the income offered towards reversal of depreciation while computing total income for the assessment year 2012-13. 5. The next issue that came up for our consideration from ground no. 4 & 5 of assessee appeal is disallowance of expenses relatable to earning exempt income u/s. 14A of the Act. The Assessing Officer, has disallowed expenses relatable to exempt income u/s. 14A r.w.r. 8D of I.T. Rules, 1962 and worked out total disallowance of Rs. 8,65,470/-. The ld. CIT(A), has scaled down disallowances worked out by the Assessing Officer on the ground that, provisions of Rule 8D of I.T. Rules, 1962 is not applicable for the impugned assessment year and thus, directed the Assessing Officer to estimate 2% on exempt income towards expenses relatable to earning exempt income. 5.1. The ld. Counsel for the assessee submitted that in order to invoke provisions of section 14A r.w.r. 8D of I.T. Rules, 1962, there must be a satisfaction f....
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....ase of M/s. Simpson and Co. Ltd in Tax case Appeal no. 2631 of 2006 dated 15.10.2012, directed the Assessing Officer to restrict the disallowance u/s. 14A to 2% of exempt income. Therefore, we are of the considered view that there is no error in the reasons given by the Assessing Officer and ld. CIT(A) to sustain disallowance u/s. 14A of the Act and thus, we reject ground taken by the assessee. 6. The next issue that came up for our consideration from ground no. 6 & 7 of assessee appeal is disallowance of investments written off and debited to profit and loss account amounting to Rs. 1,99,48,306/-. The assessee has made certain investment in subsidiary and associate concerns as promoter and investment made in subsidiary and associate concerns is diminished for various reasons. The assessee has written off diminution in value of investment amounting to Rs. 1,99,48,306/- and debited to profit and loss account. The Assessing Officer, disallowed write off of investment in subsidiary and associate concerns by observing that, as per provisions of section 37 of the Act, any expenditure (not being expenditure of the nature described in section 30 to 36 and not being in the nature of cap....
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....T(A), after considering relevant facts has rightly sustained additions made by the Assessing Officer. However, he fairly conceded that, the issue has been decided by the Hon'ble High Court of Madras in appellant's own case and thus, the matter may be decided in accordance with law. 6.4. We have heard rival contentions, perused materials available on record and gone through the orders of the authorities below. If you go by the main objects of the appellant company, as per their Memorandum of Association, the assessee's main objects are to promote, establish and run and aid public sector enterprises with electronic items. In the process, the appellant company has made investments in equity or given loans and advances toward working capital of the ventures. Since, the main objects of the appellant company is to promote industries in electronic sector, in our considered view finances provided by the assessee by way of equity participation is akin to loan transactions or advances made and in such case, if the loans are irrecoverable, then they are written off and precisely, that is what has been done by the assessee on their investments. The incurring of loss from activity of promoti....
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....nting adopted by the trader consistently and regularly cannot be discarded by the Departmental authorities on the view that he should have adopted a different method of keeping account or of valuation. The method of accounting regularly employed may be discarded only if, in the opinion of the taxing authorities, income of the trade cannot be properly deduced therefrom. Valuation of stock at cost is one of the recognised methods. No inference may, therefore, arise from the employment by the company of the method of valuing stock at cost, that the stock valued was not stock-in-trade. Nor is the http://www.judis.nic.in description of stock in the balance sheet as "investments" decisive. 12. As held in the above referred decision, no inference can be drawn with regard to description of the stock in the balance sheet as investments and this cannot be a decisive fact. In respect of more or less an identical case, the Division Bench in the case of Commissioner of Income Tax v. Tamilnadu Industrial Investment Corporation Ltd., [(2017) 394 ITR 0255 (Mad) held the same in favour of the assessee. The question which fell for consideration was whether the Tribunal was right in holding ....
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....nd TIDCO were established. Therefore, the CIT(A) was fully justified in relying upon the decision in the case of TIDCO. The Tribunal relied on a decision in the case of R.ChidambaranathaMudaliar (cited supra). We find that the reliance placed on the decision is thoroughly misconceived as in the said case, the loss was under different connotation namely with regard to Section 45 of the Act. Furthermore, in the said case, the head of income was never in dispute. Therefore, the Tribunal erred in relying upon the decision in the case of R.ChidambaranathaMudaliar. Thus, for all the above reasons, the order passed by the Tribunal reversing the order passed by the CIT(A) is not sustainable. 15. In the result, the appeal filed by the assessee is allowed. The order passed by the Tribunal dated 11.01.2008 is set aside and the order passed by the CIT(A) dated 09.01.2006 is restored. The substantial questions of law are answered in favour of the assessee. No costs." 6.5 In this view of the matter and by respectfully following the decision of Hon'ble High Court of Madras in appellant's own case for assessment year 2001-02, we are of the considered view that write off of diminution i....
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....0/- being 20% of workmen and staff welfare expenses at Rs. 30,30,749/- and addition of Rs. 6,77,926/- being 20% of travelling expenses of Rs. 33,89,631/-. The assessee carried the matter in appeal before the first appellant authority. The ld. CIT(A), for the reasons stated in their appellant order dated 29.06.2017, partly allowed appeal filed by the assessee, where the ld. CIT(A), directed the Assessing Officer to exclude sum of Rs. 6,34,937/- being amount spent toward providing coffee, tea, biscuit and water to the employees from the value of fringe benefit and computed taxable fringe benefit for the remaining amount of Rs. 23,95,812/-. The ld. CIT(A), had also directed the Assessing Officer to verify the claim of the assessee with regard to travelling and conveyance expenses as per Schedule 17 of return of Fringe Benefit, vide column no. 8B(b) related to 'conveyance, tour and travel' and very next column 9(a) of the said schedule under the head 'use of hotel, boarding and lodging facilities', in order to apply value of fringe benefit @ 5% or 20%. Aggrieved by the ld. CIT(A) order, the assessee is in appeal before us. 9.1. The ld. Counsel for the assessee submitted that, the ld....
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....r computing the value of fringe benefit. In our considered view, there is no cause of grievance with the appellant, when there is a clear finding from the ld. CIT(A) to the effect that the matter may be re-examined in light of averments of the assessee before the first appellant authority. Thus, we are of the considered view that there is no merit in ground taken by the assessee on the issue of computing the value of fringe benefit, in so far as providing travel and conveyance expenses is concerned. To sum up, the ld. CIT(A) has given appropriate relief as per law on the basis of relevant evidences filed by the assessee in so far as computation of value of fringe benefit on workmen and staff welfare expense. Similarly, the ld. CIT(A) has given a direction to the Assessing Officer to verify the claim of the assessee in respect of travel and conveyance expenses. Therefore, we are of the considered view that, there is no error in the reasons given by the ld. CIT(A) and thus, we are inclined to uphold the order of the ld. CIT(A) and dismiss appeal filed by the assessee. 10. In the result, appeal filed by the assessee in ITA NO. 2431/Chny/22017 for assessment year 2006-07 is dismisse....
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....fficer called upon the assessee to explain as to why income from sale of farmer's security cards cannot be assessed. In response, the assessee submitted that although the farmer's security card was printed and successfully carried out in the assessment year 2007-08, but the rate for said cards was fixed by the Government of Tamilnadu only in the subsequent assessment year 2008-09. In absence of the rate per card, the appellant was unable to offer income and the expenses relating to the said income was also not claimed. However, in the assessment year 2008-09, when the rate was finalized at Rs. 3.43 per card, income from sale of cards was offered for tax. Therefore, additions for the impugned assessment year tantamount to double taxation, which is not permissible under law. The Assessing Officer, however was not convinced with the explanation furnished by the assessee and according to the Assessing Officer, when the assessee is following mercantile system of accounting, income and expenditure relatable to particular assessment year should be recognized on accrual basis. Since, income relating to the sale of Farmers Security card was carried in the assessment year 2007-08, the Assess....
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....n right assessment year cannot be based on vague reason. Since, the appellant is following mercantile system of accounting, the moment it distributes cards to farmers, income from sale of cards accrues. The appellant has carried out distribution of cards in the assessment year 2007-08 and income pertaining to sale of said cards should be offered to tax for assessment year 2007-08. Therefore, we are of the considered view that, there is no error in the reasons given by the ld. CIT(A) to sustain additions made by the Assessing Officer for assessment year 2007-08. However, while computing the income from sale of farmer's security card, the Assessing Officer should allow expenses fully and wholly incurred for the purpose of earning such income. We further direct the Assessing Officer to consider the arguments of the assessee that, it has offered income from sale of cards for subsequent assessment year 2008-09 and in case the income is sustained for this assessment year, income offered by the assessee for assessment year 2008-09 should be allowed. The Assessing Officer must carry out necessary verification and in case the arguments of the assessee is correct, then we direct the Assessin....
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....not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then for the purposes of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the payee referred to in the said proviso. In other words, if the payee's have paid tax on the amount paid by the assessee and included in their return of income for relevant assessment year, then the sum paid by the assessee without deduction of tax at source cannot be disallowed u/s. 40(a)(ia) of the Act. This proviso has been examined by various courts. Admittedly second proviso to section 40(a)(ia) of the Act came into statue w.e.f. 01.04.2013 and the impugned assessment year is 2012-13. Therefore, we are not going to comment on applicability of said proviso to the case of the assessee for impugned assessment year. However, we left open the issue to the Assessing Officer, to verify the applicability of said proviso in light of arguments of the assessee and also other evidences including judicial precedents if any, filed by the assessee to justify its case. Thus, we set aside the issue to the file of the Assessing ....
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.... the impugned order without assigning proper reasons and justification. 5. The CIT (Appeals) erred in confirming the assessment of rental income of Rs. 15,600/- in the computation of taxable total income without assigning proper reasons and justification. 6. The CIT(Appeals) failed to appreciate that there was no proper opportunity given before passing of the impugned order and any order passed in violation of the principles natural justice would be nullity in law. 7. The Appellant craves leave to file additional grounds/arguments at the time of hearing." 17. The first issue that came up for our consideration from ground no. 2 & 3 of assessee appeal is disallowance u/s. 14A r.w.r. 8D of I.T. Rules, 1962, towards earning exempt income. After hearing both the sides, we find that an identical issue has been considered by us in appellant's own case for assessment year 2006-07 in ITA No. 2432/Chny/2017. The facts are identical for the impugned assessment year. The reasons given by us in ITA No. 2432/Chny/2017 for assessment year 2006-07 in preceding paragraph no. 5.3, shall mutandis mutatis apply to this appeal as well. Thus, we are inclined to uphold the f....
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....elevant facts has rightly made additions towards interest income. Thus, we are inclined to uphold the findings of the ld. CIT(A) and reject ground taken by the assessee. 19. The next issue that came up for our consideration from ground no. 5 of assessee appeal is additions towards rent due to staff quarters amounting to Rs. 15,600/-. The Assessing Officer has made additions towards rent due from staff quarters amounting to Rs. 15,600/-, on the ground that although the assessee has specified in its notes of account, but did not offer rent due from staff quarters to tax. The appellant claims that rent due from staff quarters has been offered to tax on receipt basis. 19.1 We have heard both the parties and considered relevant reasons given by the Assessing Officer to make additions towards rent due from staff quarters amounting to Rs. 15,600/-. In our considered view, when the appellant is following mercantile system of accounting, income pertains to relevant assessment year has to be accounted on accrual basis, whether or not said income has been received during the relevant financial year. Since, the appellant has reported rent due from staff quarters for the ending 31.03.2008....
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....ugned order without assigning proper reasons and justification. 9. The CIT (Appeals) failed to appreciate that there was no proper opportunity given before passing of the impugned order and any order passed in violation of the principles natural justice would be nullity in law. 10. The Appellant craves leave to file additional grounds/arguments at the time of hearing." 22. The first issue that came up for our consideration from ground no. 2 & 5 of assessee appeal is addition towards revenue recognition in respect of land lease deposit received by the assessee for allotment of industrial land in SEZ on long term lease basis. The brief facts are that, the appellant company is a promoter of SEZ, has acquired property and laid out such property into various plots and allotted such plots on a long term lease for 90/99 years to various parties for the purpose of developing information technology related services, training and electronic hardware industries. The appellant company allotted lands to various parties on long term lease basis for 90/99 years and collected upfront fees and also fixed yearly lease rent which is very nominal. The appellant company separately ....
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....ubject to maximum of 85%. Since, the appellant has received land lease deposit and handed over the possession of the land upon entering into lease agreement with the allottees, the revenue towards lease deposit accrues to the assessee as and when the assessee receives the amount. The Assessing Officer, had also took support from the case of M/s. SIPCOT, another State Government undertaking engaged in similar business, where the entire income received from allottees has been offered to tax. Therefore, the Assessing Officer opined that, from the agreement produced by the assessee, the lease period is for 90 years and such long term lease is treated as sale as per law. Therefore, rejected arguments of the assessee and made addition towards land lease deposit received by the assessee, after reducing income recognized by the assessee as per its books of accounts and made addition of Rs. 1,14,75,000/- and added back to the income. On appeal, the ld. CIT(A) for the reasons stated in their appellate order confirmed additions made by the Assessing Officer. 22.2 The Ld. Counsel for the assessee, submitted that the ld. CIT(A) erred in sustaining additions made by the Assessing Officer towa....
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....m the above, it is very clear that upfront deposit collected by the assessee is nothing but consideration received for transfer and possession of land to the allottees. The ld. DR, further referring to the provisions of section 269UA(f) of the Act submitted that, transfer in relation to immovable property means transfer of such property by way of sale or exchange or lease for a term of not less than 12 years and includes allowing of possession of such property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882. In the present case, although SEZ Act, 2005 prohibits transfer of land, but because of giving possession to the allottees and also right in enjoyment of the property makes the transaction transfer within the meaning of section 269F of the Act. Since, the appellant has collected upfront deposit from the allottees and also retained 85% of deposit leaving 15% to be refundable, after expiry of lease period, the Assessing Officer has rightly assessed land lease deposit received by the appellant for the year on receipt and their order should be upheld. 22.4 We have heard both the parties, peru....
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....n allotment of land, subject to the conditions prescribed in the lease agreement. In the present case, out of total land lease deposit received by the appellant from the allottees, 15% is refundable after expiry of lease period. Therefore, land lease deposit received by the appellant to the extent of 15% cannot be considered as income of the assessee. In so far as balance 85% of lease deposit, the appellant collects said lease deposit at the time of allotment of land and thus, the transaction between the appellant and allottees in terms of lease deed is nothing but a transfer of land as defined u/s. 269UA(f) of the Act and thus, the moment assessee allots land on lease basis and allow the possession of said property to be taken or retained in part performance of a contract of the nature referred to in section 53A of Transfer of Property Act, 1882, in our considered view the assessee ought to have recognized the revenue in the year of receipt. 22.5 Having said so, let us come back to the arguments of the ld. Counsel for the assessee in terms of terms and conditions of agreement between the parties and also the provisions of SEZ, Act 2005 and SEZ Rules, 2006. There is no dispute w....
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....d in taxing refundable land lease deposit even though the agreement between the parties clearly specifies 15% of land lease deposit is refundable. Thus, we direct the AO to exclude 15% refundable deposit from the ambit of income. As regards another argument of the ld. Counsel for the assessee in light of certain clauses of the agreement that in case of premature termination of lease agreement for any reasons, the appellant requires to refund land lease deposit after deducting 5% per year for the number of years the allottees was in possession of said land, we find that, it is not a straight case of termination of each and every transaction before expiry of lease period. The lease period is agreed for 90/99 years. Although, the lease deed provides for premature termination for violation of any of conditions prescribed there-under, but in our considered view in such unique case, the appellant can very well reverse the income recognized as and when said events takes place, but for said reason the revenue recognition cannot be postponed or reckoned proportionate over the period of lease agreement or even for 17 years without any valid reason. Thus, we reject the arguments of the ld. Co....
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.... CIT(A) and reject grounds taken by the assessee. 23. The next issue that came up for our consideration from ground no. 6 & 7 of assessee appeal is depreciation on land. This is a recurring issue. The Assessing Officer has made additions towards disallowance of depreciation on land for earlier assessment years. We have considered a similar issue for the assessment year 2006-07 in ITA No. 2432/Chny/2017 and after considering relevant facts, we held that the Assessing Officer is right in disallowing depreciation on cost of undivided interest in land. There is no provision under Income-tax Act to allow depreciation on land or properties. We further direct the Assessing Officer to consider the alternative arguments of the assessee that it has voluntarily reversed depreciation on land for the assessment year 2012-13 and offered to tax and in case the arguments of the assessee is correct, then we direct the Assessing Officer to sustain additions made towards disallowance of depreciation on land for relevant assessment years and exclude income offered by the assessee towards reversal of depreciation for the assessment year 2012-13. The reasons given by us in preceding paragraph no. 4 t....
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....e of investment. On appeal, the ld. CIT(A) sustained additions made by the Assessing Officer. 25.1 The Ld. Counsel for the assessee, has made only one argument in light of the decision of ITAT Special Bench in the case of ACIT Vs. Vireet Investments Pvt. Ltd., in ITA No.502/Del/2012 & CO No.68/Del/2014, reported in 165 ITD 27 and submitted that for the purpose of computing disallowance under Rule 8D(2)(iii) of I.T. Rules, 1962 only those investment which yielded exempt income should be considered and for this purpose the matter may be set aside to the file of the Assessing Officer for verification. 25.2 The ld. DR, on the other hand fairly agreed that the matter may be examined by the Assessing Officer in light of arguments of the assessee and decide the issue in accordance with law. 25.3 We have heard both the parties, perused materials available on record and gone through orders of the authorities below. There is no dispute with regard to the legal position as per the decision of various courts including the decision of ITAT, Special Bench in the case of ACIT vs Vireet Investments Pvt Ltd (Supra), where the Tribunal held that for the purpose of computing disallowance und....
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.... as sale were wholly unjustified and ought to have appreciated that the legal issues canvassed in this regard were completely overlooked in the process of confirming an addition of Rs. 14,88,58,800/-. 6. The CIT (Appeals) erred in confirming the addition of otional expenses quantified as per Rule 8D of the Income Tax Rules, 1962 for disallowance u/s 14A of the Act in the book profit computation for the reasons stated in para 13.4 of the impugned order without assigning proper reasons and justification. 7. The CIT (Appeals) failed to appreciate that there was no proper opportunity given before passing of the impugned order and any order passed in violation of the principles natural justice would be nullity in law. 8. The Appellant craves leave to file additional grounds/arguments at the time of hearing." 28. The first issue that came up for our consideration from ground no. 4 & 5 of assessee appeal is addition towards revenue recognition on land lease deposit received for allotment of land on long term lease for 90/99 years. An identical issue has been considered by us in ITA No. 2434/Chny/2017 for assessment year 2011-12. The facts are identical for th....
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....ax Rules, 1962 in the computation of taxable total income without assigning proper reasons and justification. 3. The CIT (Appeals) failed to appreciate that the legal issues brought out for the consideration in the proceedings before him in writing were completely overlooked and brushed aside, thereby vitiating the findings from para 14 of the impugned order. 4. The CIT (Appeals) erred in confirming the revenue recognition attempted by the Assessing Officer for the purpose of making addition relating to long term land lease for which deposits were received by the appellant from para 10 to 12 without assigning proper reasons and justification. 5. The CIT (Appeals) failed to appreciate that the reasons given for equating perpetual/long lease as sale were wholly unjustified and ought to have appreciated that the legal issues canvassed in this regard were completely overlooked in the process of confirming an addition of Rs. 6,37,70,000/- 6. The CIT (Appeals) failed to appreciate that there was no proper opportunity given before passing of the impugned order and any order passed in violation of the principles natural justice would be nullity in law. ....