TaxTMI 
TaxTMI 
2011 (4) TMI 1562
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....IT(A) has erred in upholding the reopening of asstt. proceeding. 3. The brief facts of the case are that assessee is an undertaking of Govt. of India which has been established under a special Act of Parliament called NCDC Act 1962 (26 of 1962). Its administrative control is mainly under the Ministry of Agriculture, Department of Agriculture and Cooperation., Central Govt. of India. It has filed its return of income on 28th October, 2002 declaring an income of Rs. 36,47,32,240/- . The return was processed u/s 143(1) on 28th February, 2003. The case was selected for scrutiny assessment and notice u/s 143 (2) was issued on 17.10.2003. The AO has passed an asstt. order u/s 143(3) on 17th March, 2005. The assessment has been reopened by issuance of a notice u/s 148 on 21st March, 2007. The assessee challenged the reopening of assessment before Ld. CIT(A). However, on examination of the facts and circumstances, Ld. CIT(A) did not accept the contention of the assessee and uphold the reopening of assessment. 4. Ld. Counsel for the assessee while impugning the order of Ld. CIT(A) took through page No. 31 of the paper book where reasons for reopening of the asstt. are available. He po....
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....esent case. 5. We have duly considered the rival contention and gone through the record carefully. We find that original assessment order is running into just one and a half page. No discussion is discernable on this issue. The observations made by the AO read as under:- "During the course of assessment proceedings, in addition to the questionnaire, the assessee was asked to furnish details regarding justification of claim of deduction u/s 36(1)(viii) and also giving a note on whether the proviso to the Section has been observed. The assessee was also asked to furnish details of treatment of grants and loans received, travelling allowance and salaries etc. The assessee vide its letter dated 3.12.2004 furnish details regarding claim of deduction u/s 36(1)(viii) of the I.T. Act 1961 and treatment of loans etc. The assessee filed details regarding claim of travelling expenses and expenses on salary and allowances paid to staff on 20.12.2004. All the details have been perused and placed on record." 6. We confronted the Ld. Counsel for the assessee to show us the letter dated 3rd December, 2004 which was submitted to the AO and which can throw some light about the working....
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.... 4. In the return of income, the assessee has claimed deduction u/s 36(1)(viii) of the Act amounting to Rs. 31,89,54,262/- being 40% of Rs. 79,73,85,656/- transferred to special reserve after excluding receipt of interest of Rs. 27,10,66,248/- on loans granted for less than five years. In the assessment, the AO disallowed the deduction u/s 36(1)(viii) to the extent of Rs. 28,75,86,725/- being 40% of net amount of Rs. 71,89,66,812/-. The details of the amount on which deduction u/s 36(1)(viii) has been denied by the AO are as under: - Particulars Amount (Rs.) Less: Expenses deducted by AO (apportioned) (Rs.) Amount on which deduction u/s 36(1)(viii) not allowed (Rs.) A. Interest on Bank deposits 75,44,47,439 7,54,44,744 67,90,02,695 B. Income on Investments 52,50,000 2,62,500 49,87,500 C. Service charges on SDF loans 2,66,11,476 12,72,085 2,53,39,391 D Interest on advances/deposits 13,40,393 NIL 13,40,393 E. Misc. receipts 82,96,833 NIL 82,96,833 Total 79,59,46,141 7,69,79,329 71,89,66,812 5. On an appeal, the ld. CIT(A) confirmed the AO's order on....
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....It has been held by the CIT(A) that these three incomes are not profits derived from business of providing long term finance. The contention of the assessee is that even financing by way of investing in shares is also akin to providing long term finance and hence dividend on such investment is also profit from the business of providing long term finance. Regarding interest from banks on short term deposit, it is the claim of the assessee that since the source of deposit, it is the claim of the assessee that since the source of fund with the assessee is long term funding from Government of India loans, bonds and term loans and in the course of providing funds, these funds were surplus with the assessee for the a short period and in order to mitigate interest expenditure, these funds were given to banks on short term deposits and hence this interest income is also profit from business of providing long term finance. Regarding service charges on SDF loans, it is the submission that since SDF loans are long term, this income is also profit derived from business of providing long term finance. We are not in agreement with ld. AR of the assessee with regard to all these three items becau....
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....on that these three receipts can be said to be par of profit/income attributable to business of providing long term finance but these receipts cannot be said to be profits derived from such business of providing long term finance and hence, these receipts are not eligible for deduction u/s 36(1)(viii). We hold so because we are of the considered opinion that investment in shares is for earning dividend income and the dividend cannot be said to be profit derived from providing of long term finance. Nothing was shown to us that investment in shares were made as a means of providing long term finance and that it is not an investment decision of the assessee. Regarding bank interest, it is admitted position that these FDS/Deposits were for short period and even if it is for a long period, it is deposit with bank and not providing of long term finance to banks and hence not eligible for deduction u/s 36(1)(viii). Regarding service charges on SDF loans, we find that admittedly, there is no finance given by the assessee as the entire financing in SDF Loans is by the Govt. and not by the assessee and the assessee is getting only some service charges for rendering certain services in that c....
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....nt cannot reopen the assessments for those years also, for which time limit has not expired only because the department cannot reopen some earlier assessment years for which the time limit has expired. In such a case, it will always be a situation, that on same issue, department has wrongly allowed some benefits to the assessee which was not allowable as per law and since the department had noticed the mistake late and cannot reopen the cases of some of the earlier years, it cannot be said that the department cannot rectify the mistake in subsequent years also because the department has made a mistake in earlier years which cannot be rectified by the department because of expiry of limitation period. Under this factual position, we feel that this claim of the assessee also deserves to be rejected in view of these peculiar facts of the present case. The judgments cited by ld. AR of the assessee in this regard are not relevant in view of these peculiar facts of the present case. 15. One more contention was raised by the assessee with regard to the judgment of Hon'ble Apex Court in connection with sec. 80I/80IA/80IB. It has been submitted that the judgments of Hon'ble Apex Co....
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....ssessee to raise the dispute regarding the quantum of exclusion made by the AO from profit of business for the purpose of computing deduction allowable to the assessee u/s 36(1)(viii). In this regard, we are not in agreement with ld. DR of the revenue that COD has not granted permission to the assesse to raise this aspect of the matter. When COD has permitted the assessee to contest the issue regarding allowability of deduction u/s 36(1)(viii),the alternative claim of the assessee is part of the broader permission granted by COD and hence we are of the view that the assessee is entitled to raise this dispute also. 17. Now, we examine this alternative contention of the assessee that entire receipt on account of bank interest cannot be reduced from business profit for the purpose of calculating deduction u/s 36(1)(viii) allowable to assessee. The claim of the assessee is that even if it is held that bank interest on temporary deposits is not eligible for deduction u/s 36(1)(viii), then also, only the net interest income after deducting corresponding interest expenditure should be reduced from business profit. We are in agreement with ld. AR of the assessee on this aspect and....
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....alternative contention has been decided by the Tribunal vide para 16 & 17 of the order which has already been reproduced hereinabove. In addition to the above, the assessee has produced before us a working of disallowance for our consideration. However, this working was not before the AO. We, therefore, direct the AO to work out the net profit which is liable to be disallowed as deduction u/s 36(1)(viii) after considering the assessee's contentions. The assessee shall appear before the AO and file its working for the purpose of disallowance of income u/s 36(1)(viii) of the Act. We order accordingly. 10. Next issue is with regard to the disallowance of expenses u/s 14A of the Act. 11. In the assessment the AO has disallowed sum of Rs. 1,61,44,459/- by applying Rule 8D of the Income Tax Rules, u/s 14A of the Act. However, on an appeal, the CIT(A) made certain modifications and restricted the disallowance to Rs. 2,04,810/- by applying Rule 8D of Income Tax Rules. 12. In the course of hearing, it has been pointed out that the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. V. DCIT (2010) 234 CTR (Bom.) 1, where it is held that Rule 8D sh....