AI Drafter 
TaxTMI 
TaxTMI 
2024 (5) TMI 1318
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....e orders passed by the ld. CIT(A) pertaining to AYs 2007-08 to 2009-10. 2. Giving the brief background of these present appeals, it was pointed out that the appeals pertaining to AY 2005-06 to 2008-09 have come up before us in the second round against the assessment made on the assessee by the AO adjudicated upon by the Ld. CIT(A), in alignment with the directions made by the ITAT in first round when the matter travelled to it. The appeal for AY 2009-10, it was pointed out, arose in pursuance to the appeal effect order passed by the Assessing Officer in pursuance to the order passed by the ITAT in the first round, while that for AY 2011-12 has arisen on account of the appeal effect order passed by the Assessing Officer in pursuance to the order passed by the ld. CIT(A) in the first round. Therefore, while the appeals for AYs 2005-06 to 2008-09 have come up in appeal before us in the second round of litigation after the ITAT passed the order in the first round giving directions on specific issues, the appeals for AYs 2009-10 and 2011-12 have been filed in pursuance to the appeal effect orders passed by the Assessing Officer giving effect to the order of the ITAT and ld. CIT(A) re....
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....d. CIT(A) in both the years. It was pointed out that the ld. CIT(A) had held so noting that in AY 2007-08 identical Foreign Exchange Fluctuation Gain arising from the same set of investments as in the impugned year had been held by the ITAT to be capital in nature which had been confirmed by the Hon'ble jurisdictional High Court also. Our attention accordingly was drawn to the facts and findings of the ld. CIT(A) in AY 2006-07 which, it was pointed out, was identical to that in AY 2005-06 also, as contained in paragraph Nos. 7 & 7.2 of the order as under:- "7. Ground No.3 pertains to consideration of foreign exchange fluctuation gain of Rs. 24,01,43,981/-. Details are as under: 1. Forward contract in respect of loan/ Investment in Caraco Pharmaceutical Laboratories Ltd. : (21,41,824) 2. Reinstatement of FCCB : 27,66,11,029 3. Reinstatement of FCCB proceeds : 28.66,118 4. Reinstatement of loan to other subsidiaries out of FCCB Proceeds : (3,71,91,342) 24,01,43,981 7.1. At the outset, the Ld. AR brought my attention towards order of the jurisdictional tribunal wherein full relief was al....
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....- as a capital receipt. The assessee was asked to show cause why the same should not be taxed as normal business income. The assessee strongly objected to the proposed action of the A.O. In support of its contention, the assessee relied upon the various decisions namely Homi Mehta Sons Pvt. Ltd. 22 ITR 528 (Bom.), Sutlej Cotton Mills Ltd. 116 ITR 1 (SC), Tata Iron & Steel Co. Ltd. 231 ITR 285 (SC), Padamjee Pulp & Paper Mills Ltd. 210 ITR 801 (Bom.) 55. The contentions of the assessee were dismissed by the A.O. who was of the firm belief that the receipt in the case on hand is nothing but a revenue receipt. The A.O. accordingly taxed the same as revenue receipt. 56. Assessee carried the matter before the ld. CIT(A) and reiterated what has been stated during the course of the assessment proceedings. 57. After considering the facts and the submissions, the ld. CIT(A) was of the considered opinion that the assessee has entered into forward contracts to safeguard the value of investments made by the assessee in its subsidiary against the adverse forex fluctuation and to that extent the ld. CIT(A) restricted the addition to Rs. 14,33,80,289/-. 58. Ins....
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....tract would not change its character same being in connection with a capital asset and, therefore, has to be treated as capital receipt. For this proposition, we draw support from the decision given in the case of Mahindra & Mahindra Ltd. 5 SOT 217 (Mum.). 62. Considering the facts in totality in the light of the nature of contract entered into by the assessee, we do not find any merit in the findings of the First Appellate Authority. We set aside the same and direct for the deletion of the addition of Rs. 14,33,80,289/-." 8. Our attention was also drawn to the order of the Hon'ble Gujarat High Court confirming the order of the ITAT, which was placed before us in the paper-book filed. 9. The ld. DR fairly agreed that the issue stood covered in favour of the assessee by the order of the Hon'ble jurisdictional High Court in the case of the assessee for AY 2007-08. He fairly agreed that there was no distinction in the facts of the case pertaining to AY 2007-08 and the present two years i.e. AYs 2005-06 and 2006-07, and he was unable to point out any distinction on law also before us. In view of the above, we see no reason to interfere in the order of the ld. CIT(A) trea....
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....consequently enhance the deduction in the subsequent year when the goods have been returned or the amount has been written off, as the case may be." 14. The issue, it was pointed out, related to deduction of profits claimed u/s 10B of the Act by the assessee on account of goods exported, which was disallowed in the first round to the extent of Rs. 1,70,28,337/- for the reason that the assessee had not received the export consideration within six months from the end of the financial year ,which was a condition necessary for claiming deduction u/s 10B of the Act. The ITAT had restored the matter to the Assessing Officer in the light of the provisions of Section 155(11A) of the Act. In the second round before the Assessing Officer and even before the ld. CIT(A), the contention of the assessee remained that the goods exported to the said tune of Rs. 1.70 crores had returned back in the next year i.e. in FY 2007-08 pertaining to AY 2008-09. The claim of the assessee was that the return of these goods had been accounted for in the books of the assessee for that year, reducing export sales to that year, resulting in lesser claim of deduction u/s 10B to the said extent. Thus, as a conse....
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.... of the concerned financial year. The assessee admittedly having failed to fulfil this necessary prerequisite, the ld. CIT(A), we hold, has rightly held the assessee not entitled to claim deduction u/s 10B of the Act with respect to the export turnover of Rs. 1.70 crores. The alternative claim of the assessee for direction to allow deduction u/s 10B in the year of return of the impugned goods when it is duly accounted for in the books of the assessee, we find, has been adequately addressed by the ld. CIT(A) giving necessary directions in this regard to allow the assessee's claim after due verification of the facts of the return of sale of goods. In view of the same, ground of appeal No.2 of the assessee is dismissed. 18. Ground of appeal No.3 reads as under:- "3. Addition of provision for doubtful debts and advances while calculating book profit u/s. 115JB of the Act Rs. 50,68,982: 3.1 On the facts and in the circumstances of the case and in law, the Ld. CIT (A) grossly erred in confirming the addition of provision for doubtful debts and advances while calculating book profit u/s 115JB of the Act. 3.2 On the facts and in the circumstances of the cas....
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....,68,982/-. 20. Before us, the ld. Counsel for the assessee contended that the issue has since been decided by the full bench of the Hon'ble jurisdictional High Court in the case of CIT Vs. Vodafone Essar Gujarat Limited, [2017] 397 ITR 55 (Gujarat). Copy of the order was placed before us; and it was pointed out there from that the Hon'ble Gujarat High Court in the full bench decision had held that the provision of bad and doubtful debts, per se, would not be added back to the book profits of the assessee in terms of clause (i) of the Explanation to Section 115JB of the Act. That if an assessee debits the provision to the profit and loss account and credits the asset account like sundry debtor's account, it would constitute a write off of an actual debt. However, if an assessee debits `provision for doubtful debt' to the profit and loss account and makes a corresponding credit to the `current liabilities and provisions' on the liabilities side of the balance-sheet, then it would constitute a provision for doubtful debt liable for adjustment to the Book Profits in terms of Clause(i) to the Explanation to the section. Our attention was drawn to paragraph no. 23 of the order....
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....sessee was squarely covered by the decision of the full bench of the Hon'ble jurisdictional High Court in the case of Vodafone Essar Gujarat Limited (supra), according to which the provision for bad and doubtful debts having been netted/reduced from the debtor's balance appearing in the balance-sheet, the same need not be added back to the book profit of the assessee u/s 115JB of the Act. 22. The ld. DR fairly agreed with the ld. Counsel for the assessee that the issue was covered in favour of the assessee by the decision of the full bench of the Hon'ble jurisdictional High Court in the case of Vodafone Essar Gujarat Limited (supra). In view of the same, we have no hesitation in holding that the provision for bad and doubtful debts amounting to Rs. 50,68,982/- are not to be added to be book profit of the assessee for the purposes of Section 115JB of the Act. Ground of appeal No.3 of the assessee is accordingly allowed. 23. In effect, the appeal of the assessee i.e. ITA No. 109/Ahd/2020 for AY 2006-07 is partly allowed. ITA No. 110/Ahd/2020 : AY 2007-08 Assesses Appeal 24. Ground of appeal No.1 is general in nature and, therefore, does not require any adjudication.....
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....s. 1,83,33,509/-. 3.2 The Assessing Officer as well as Ld. CIT(A) by confirming the disallowance of provision for leave encashment, have grossly erred in disregarding the directions given by the Hon'ble Income tax Appellate Tribunal ('Tribunal') that the issue is to be decided afresh in light of decision of Hon'ble Supreme Court in the case of Exide Industries Limited." 28. The issue relates to the disallowance made of the provision for leave encashment of Rs. 1,83,33,509/- on account of the same having not been paid during the year under consideration, u/s 43B of the Act. 29. In the first round, the ITAT had restored the issue to the Assessing Officer to decide the same in the light of the decision of the Hon'ble Apex Court in the case of Exide Industries Ltd, where the matter was pending for adjudication. Before both the Assessing Officer and the ld. CIT(A), the decision of the Hon'ble Apex Court in the case of Exide Industries Ltd. (supra) still remained pending. The ld. CIT(A), therefore, to be safe and keeping the interest of the Revenue, confirmed the order of his predecessor upholding the disallowance of provision for leave encashment remaining....
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.... that the Ld. AO grossly erred in computing disallowance in respect of investments from which no exempt income is received." 32. The issue raised in the above ground relates to the disallowance u/s 14A read with rule 8D amounting to Rs. 1,48,94,208/-. The disallowance made was in respect of tax exempt income earned from partnership firm in which the assessee had invested i.e. M/s. Sun Pharma Industries (SPI) and M/s. Sun Pharma Exports (SPE). The ITAT, in its order passed in first round before it, had directed the Assessing Officer to compute the disallowance, so far as the administrative expenses were concerned, as per Rule 8D of the Income-Tax Rules, 1962 read with Section 14A of the Act. The Assessing Officer computed the disallowance to be Rs. 1,48,94,208/-, though as per the assessee's working submitted to the Assessing Officer the same worked out to Rs. 4,29,691/-. The difference in the two working was on account of the fact that the assessee had considered only the portion of the investments made in fixed capital of the partnership firm and excluded the portion reflected as current capital while computing the disallowance @ 0.5% of the average of investments made by the a....
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....he AR being very qualified Chartered Accountant agreed that administrative expenses year on year cannot be constant. It is impossible under commercial/business prudence. Legislature has enacted Rule 8D (iii) with an intention to disallow same expenditure to safeguard the interest of the revenue. Neither the AO nor the CIT (A) has power to deviate from that rule. The Hon'ble Supreme Court in the case of SBI, Patiala (Supra) held that investment made even for strategic purposes in its AE attract section 14A r.w. Rule 8D. The intention of the assessee hardly makes any difference. Given the facts of the case, I do not find any infirmity in the AO's action. Ground No.3 is accordingly, dismissed." 33. Before us, the ld. Counsel for the assessee emphasized that it is only the investments made in fixed capital of the partnership firm of the assessee by the assessee which is to be considered for computing the disallowance as per Rule 8D of the IT Rules, 1962 read with section 14A of the Act. For the said purpose, his argument was that the capital of a partnership firm by way of fixed capital and current account capital were of different nature, and it is only the fixed capit....
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....tribution. Section 48 of the Indian Partnership Act, to which the ld. Counsel for the assessee drew our attention, nowhere makes any distinction in this regard with respect to the payment of amounts outstanding in current capital account and fixed capital account on the settlement of accounts between the partners. For the sake of clarity, the said section is being reproduced hereunder:- "48. Mode of settlement of accounts between partners In settling the accounts of a firm after dissolution, the following rules shall, subject to agreement by the partners, be observed: -- (a) Losses, including deficiencies of capital, shall be paid first out of profits, next out of capital, and, lastly, if necessary, by the partners individually in the proportions in which they were entitled to share profits. (b) The assets of the firm, including any sums contributed by the partners to make up deficiencies of capital, shall be applied in the following manner and order:-- (i) in paying the debts of the firm to third parties; (ii) in paying to each partner rateably what is due to him from the firm for advances as distinguished from capital; ....
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....vided by Appellant to its AE's amounting to Rs. 39,48,000/-. 5.2 The Assessing Officer as well as Ld. CIT(A), by confirming the addition on account of corporate guarantee provided to AE, have grossly erred in disregarding the directions given by the Hon'ble Tribunal that the issue is to be decided afresh in light of decision of Hon'ble Gujarat High Court in the case of Micro Inks Limited." 37. The issue relates to the addition made to the Arm's Length Price of International Transaction as Corporate Guarantee on account of upward adjustment made to the tune of Rs. 39,48,000/- - Corporate Guarantee having been provided by the assessee to its Associated Enterprise Sun Pharmaceuticals Industries Inc. and Sun Pharmaceuticals Bangladesh Ltd. 38. In the first round, the issue was restored back by the ITAT to the Assessing Officer to be decided in the light of decision of the Hon'ble jurisdictional High Court which was seized with an identical issue in the case of Micro Inks Ltd. in Tax Appeal No. 507 of 2016. During the pendency of the matter before the Assessing Officer and the ld. CIT(A), the decision of the Hon'ble jurisdictional High Court in the case of Mic....
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....ice to the above, the Ld. CIT(A) grossly erred in not directing the Ld. AO to consequently enhance the deduction in the subsequent year when the goods have been returned." 43. It was common ground and the issue raised in the said ground was identical to that raised by the assessee in its appeal for AY 2006-07 in ITA No. 109/Ahd/2020 in Ground No.2, which was been dealt with by us above in our order. Our decision rendered therein at paragraph No.17 of order above will squarely apply to this ground, following which we uphold the disallowance of deduction u/s 10B on account of export turnover of Rs. 67,216/-, the sale consideration of which was admittedly not received within six months from the end of the financial year, but in fact the sales was returned in the subsequent years. Ground of appeal No.2 is accordingly dismissed. 44. Ground of appeal No.3 reads as under:- "3. Provision for Leave Encashment under Section 43B - Rs. 39,98,673/- 3.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in not allowing provision for leave encashment amounting to Rs. 39,98,673/-. 3.2 The Assessing Officer as well as Ld. C....
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....ance under Section 14A in respect of investments other than investment in partnership firm Sun Pharmaceuticals Industries. 4.2.2 The Ld. CIT(A) failed to appreciate that the Ld. AO grossly erred in computing disallowance in respect of investments from which no exempt income is received." 47. It was common ground that the issue raised in the aforesaid ground was identical to that raised by the assessee in its appeal for AY 2007-08 in ITA No. 110/Ahd/2020 in Ground No. 4, which was been dealt with by us above in our order. Our decision rendered therein at paragraph Nos.34-35 of order above will squarely apply to this ground, following which we confirm the disallowance made by the Assessing Officer, and confirmed by the ld. CIT(A), u/s 14A read with rule 8D of the IT Rules, 1962 in relation to investment in the partnership firm amounting to Rs. 2,97,68,071/-. Ground of appeal No.4 of assessee's appeal is accordingly dismissed. 48. Ground of appeal No.5 reads as under:- "5. Addition on account of Corporate Guarantee provided to Associated Enterprise ('AE') - Rs. 23,88,000/- 5.1 On the facts and in the circumstances of the case and in law, the....
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....ailed to appreciate that considering balance reflected in current account of partnership firm for the purpose of computing disallowance u/s. 14A read with rule 8D would result into absurdity and several discrepancies. 2.2 No disallowance in relation to investments from which no exempt income is earned. 2.2.1 The ld. CIT(A) grossly erred in confirming the action of Ld. AO to make disallowance under Section 14A in respect of investments other than investment in partnership firm Sun Pharmaceuticals Industries. 2.2.2 The Ld. CIT(A) failed to appreciate that the Ld. AO grossly erred in computing disallowance in respect of investments from which no exempt income is received." 53. It was common ground that the issue raised in the aforesaid ground was identical to that raised by the assessee in its appeal for AY 2007-08 in ITA No. 110/Ahd/2020 in Ground No. 4, which was been dealt with by us above in our order. Our decision rendered therein at paragraph Nos.34-35 of order above will squarely apply to this ground, following which we confirm the disallowance made by the Assessing Officer, and confirmed by the ld. CIT(A), u/s 14A read with rule 8D of the IT Rules....
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....ing Officer for verification of the claim of expenses directing him to verify the assets register, inspection report of DSIR etc. 59. Aggrieved by the order of the ld. CIT(A), both the assessee and the Revenue are in appeal before us raising the following grounds:- By Assessee "Non-deduction of R&D Expenses not approved by DSIR - Rs. 27,67,66,000/- The Ld. CIT(A) grossly erred in not quashing the disallowance carried out by the Ld. AO without appreciating that the time limit to pass an order giving effect to the appeal of CIT(A) has expired. On the facts and in circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that claim made by the Appellant was to be unconditionally allowed where the Ld. AO failed to pass the order within the time limit prescribed under the Income-tax Act, 1961." By Revenue 1. Whether on the facts and in the circumstance of the case and in law, the Commissioner of Income Tax(A) was justified in allowing the claim of the assessee u/s 35(2AB) of the Act without appreciating that the expenditure claimed is in excess to what is approved expenditure eligible as per the prescribed authorit....