TaxTMI 
TaxTMI 
2024 (3) TMI 90
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....IT(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 total income without assigning proper reasons and justification. 7. The CIT (Appeals) fa....
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....wed 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 Officer for the assessment year 2012-13. Therefore, he submitted that the income to the said extent has already been o....
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.... 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 from the Assessing Officer having regard to the books of accounts of the assessee that, he has not satisfied with disallowanc....
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.... 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 capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of business or ....
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....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 promoting, and supporting public sector enterprises is akin to loans and advances and any loss in value of said investments partakes the nature o....
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....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 that the shares are stock-in-trade of the assesee company. The Division Bench took note of the Memorandum and Articles of Association which spelt out the main activit....
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....anathaMudaliar (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 in value of investment in other companies is allowable as revenue expenses/loss in terms of section 28 and 37(1) of the Act. Thus, we reverse the findings of the ld. CIT(A) on this issue and....
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....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. CIT(A) erred in sustaining the assessment of Fringe Benefit relating to staff welfare to an extent of Rs. 23,95,812/-, without appreciating fact that the presumption of fringe benefit in the expenses incurred under the head 'staff welfare ....
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....ssessee 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 dismissed. ITA NO: 2433/Chny/2017 for assessment year 2007-08: 11. The assessee has raised the following grounds of appeal: "1. The order of The Commissioner of Income Tax (Appeals) 9, Chennai dated 23.06.2017 in I.T.A.No.108/CIT(A)-9/2010-11 for the ....
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....ed 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 Assessing Officer has made addition of Rs. 2,59,47,140/- towards income from sale of farmers security card. On appeal, the ld. CIT(A) sustained additions made by the Assessing Officer. 12.1 The ld. Counsel for the assessee submitted that, even in a case where the assessee is following mercantile systems of....
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....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 Assessing Officer to exclude income from sale of farmers security cards for the assessment year 2008-09. 13. The next issue that came up for our consideration from ground no. 3 & 4 of assessee appeal is disallowance u/s. 40(a)(ia) of the Act, for non-deduction of tax at source on certain expenditure. During the co....
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....ther 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 Officer and direct the Assessing Officer to verify the claim of the assessee in light of second proviso to section 40(a)(ia) of the Act and decide the issue in accordance with law. 14. The next issue that came up for our consideration from ground no. 5 & 6 of assessee appeal is disallowance u/s. 14A r.w.r. 8D of I....
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....assing 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 findings of the ld. CIT(A) and direct the Assessing Officer to restrict disallowance of expenditure relatable to earning exempt income u/s. 14A of the Act to 2% exempt income earned for the assessment year and reject ground taken by the assessee. 18. The next issue that came up for our consideration from ground no. 4 of assessee appeal is additions towards interest on accr....
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....owards 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, in our considered view the Assessing Officer has rightly made additions and thus, we are inclined to uphold the findings of the ld. CIT(A) in sustaining the additions made by the Assessing Officer and reject ground taken by the assessee. 20. In the result, appeal filed by the assessee is ITA No. 2434/Chny/2017 for assessment year 2008-09 is dismissed. ITA NO: 2435/CHNY/2017 fo....
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....o. 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 collects development and maintenance charges of industrial plots in SEZ. The allotted parties paid advances towards land lease deposit which has been shown under the heading 'lease land deposit'. The minimum lock-in period is three years. In case, the allottee's violates any of the conditions prescribed in lease agreement, the appellant can take back the possession of the land after deducting proportionate land lease deposit paid by the allottees. The appel....
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....ottees 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 towards revenue recognition on land lease deposit received by the assessee, in terms of lease agreement entered into between various parties for allotment of certain land in SEZ, without appreciating fact that such allotments cannot be considered as transfer of land in terms of provisions of SEZ Act, 2005 and SEZ Rules, 2006. The Ld. Counsel for the assessee, referring to opinion from the Institute of Chartered Accountant of India, on the issue of revenue recogniti....
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.... 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, perused materials available on record and gone through orders of the authorities below. The appellant is in the business of promoting electronic industries in the state of Tamilnadu, has got allotment of land in terms of SEZ Act vide Government order No. 327 dated 26.05.2005. The appellant company in turn leased out said lands to various companies on long term lease as per the guidelines/directions of the State Government with an intention to promote electronic industr....
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....nd 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 with regard to the fact that the SEZ Act, 2005 prohibits sale of plots to allottees. But, fact remains that the Act does not prohibits the possession of the plots by the assessee. The allottees are in control of the property and enjoy the fruits of the same. Therefore, the moment the assessee allots land on lessee and allow possession of said land, in our considered view the provisions of section 2(47)(v) of the Act and the transfer referred to in section 53A of Trans....
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....ducting 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. Counsel for the assessee. 22.7 Coming back to the opinion issued by the ICAI. The appellant has sought a clarification from the ICAI for revenue recognition on lease deeds entered into between various allottees. The ICAI has given its opinion in light of definition of operating lease and finance lease. In our considered view, long term lease for 90/99 years is a separate category and neither can it be treated as operating lease nor finance lease. The report itself recog....
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....er 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 to 4.2 in ITA No. 2432/Chny/2017 for assessment year 2006-07 shall equally apply for this assessment year as well. Therefore, for similar reasons, we are inclined to uphold the findings of the ld. CIT(A) and reject ground taken by the assessee. 24. The next issue that came up for our consideration from ground no. 8 of assessee appeal is re-computation of book profit u/s. 115JB of the Act by making additions towards depreciation on land. The Ld. Counsel for the assessee submi....
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....uld 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 under Rule 8D(2)(iii) of I.T. Rules, 1962 only those investments which yielded exempt income for the year needs to be considered. It is the argument of the Ld. Counsel for the assessee that while computing disallowance under Rule 8D(2)(iii) of I.T. Rules, 1962, the Assessing Officer has taken all investments including investment which did not yield exempt income. The matter needs re-look from the Assessing Officer. Therefore, we are of the considered view that the issue needs to go back to....
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.... 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 the impugned assessment year under consideration. The reasons given by us in preceding paragraph no. 22 to 22.8 in ITA No. 2434/Chny/2017 for assessment year 2011-12, shall mutatis mutandis apply to this appeal as well. Therefore, for similar reasons, we are inclined to uphold the findings of the ld. CIT(A) and reject ground taken by the assessee. 29. The next issue that came up for our consideration from ground no. 6 of assessee appeal is re-computation of book profit u/s. 115JB of the Act towards disallowance of depreciation on land. A similar issu....
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....lant 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. 7. The Appellant craves leave to file additional grounds/arguments at the time of hearing." 33. 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 the impugned assessment year under consideration. The reasons given by us in preceding paragraph no. 22 to 22.8 in ITA No. 2434/Chny/2017 for assessment year 20....