TaxTMI 
TaxTMI 
2026 (8) TMI 1166
X X X X Extracts X X X X
X X X X Extracts X X X X
....ation of addition made u/s 56(2)(viib) of the Act in the sum of Rs. 3,59,22,304/-. 2.1 We have heard the rival submissions and perused the materials available on record. The assessee is engaged in the business of providing coaching to students for admission to various institutions of management, engineering, fashion designing, law etc through its own centres and through franchises. The assessee also provides vocational training services to some companies. The assessee has declared revenue from operations of Rs. 11,65,19,97,666/- and profit before tax of Rs. 9,99,87,601/- in its profit and loss account. The assessee company entered into an agreement on 12.11.2011 to acquire the business of G K Publications for a fixed consideration of Rs. 33,71,88,713/- out of which an amount of Rs. 5,77,35,982/- was to be discharged by issuing shares of C L Educate Limited (assessee company) to the promoters of G K Publications Pvt. Ltd.. The assessee company allotted 83,104 shares to the promoters of G K Publications Pvt. Ltd. on 01.05.2012 and 31.10.2012. Since the allotment of shares had happened during the year under consideration, the ld. AO sought to trigger the taxable event by applying t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....)(viib) per se could not be made applicable as no consideration for issue of shares was received during the year by the assessee and that the consideration for issue of shares was received in F.Y. 2011-12 relevant to A.Y. 2012-13. It was also submitted that the Ld. AO is not empowered to change the valuation method adopted by the assessee. The Ld. CIT(A), however, did not heed to the contentions of the assessee and upheld the action of the Ld. AO. 2.4 We find that admittedly no money/consideration was received by the assessee company for issuance of shares. The shares that were allotted on 01.05.2012 and 31.10.2012 were merely a mode of discharging the part consideration for acquisition of business undertaking of G K Publications Private Limited by the assessee company pursuant to the agreement dated 12.11.2011. There is absolutely no cash inflow of funds for the assessee company for issue of shares during the year under consideration. Hence, provisions of section 56(2)(viib) of the Act could not be applied at all. At the cost of repetition, we would like to state that only the shares were allotted during the year pursuant to acquisition agreement dated 12.11.2011. The shares we....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 3.2 Out of the aforesaid table, the disputed issue is only with regard to doubtful advances written off in the sum of Rs. 11,61,86,712/- in respect of amounts recoverable from Carrier Launcher Education Foundation (CLEF). We find that assessee in F.Y. 2010-11 & 2011-12 provided infrastructure facilities and licenses to CLEF and recognised the corresponding fee as taxable income in those years. Due to non-receipt of payment from CLEF, the unreceived amount was subsequently transferred to CLEF's loan account and interest was charged thereon and such interest was duly offered to tax as income prior to A.Y. 2013-14. The details of the amount receivable from CLEF are tabulated as under:- Particulars FY 2010-11 FY 2011-12 Total Total receivable against Infrastructure fees Rs. 4,54,62,492 Rs. 3,55,70,040 Total receivable against license and soft skill fees Rs. 28,45,361/- Rs. 35,86,485 Total Rs. 4,83,07,853/- Rs. 3,93,24,876/- Rs. 8,76,32,729 Net Interest Receivable Rs. 81,99,223/- Rs. 2,03,54,760 Rs. 2,85,53,983 Total amount written-off Rs. 11,61,86,712 3.3 During the year und....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessee in the computation of total income. The break-up of Rs. 1,88,42,329/- which was reduced from the computation of total income together with reasons for exclusion is as under: a) Write-back of advance fees- Rs. 1,55,17,406/- (Rs. 1,11,51,558/-+ Rs. 43,65,848/-) b) Write-back of prepaid franchise fee- Rs. 33,24,923/- Ground No. 4 Issue AO(Pg/Para) CIT(Pg/Para) Remarks Addition of Rs. 1,88,42,329 on account of "Liabilities no longer Required" Paras 6.1 to 6.6 @ Pg. 44- 47 of AO order Paras 22 to 23 @ Pg. 8 of CIT(A) order During the relevant year, the assessee in its audited profit and loss account credited a sum of Rs. 3,15,79,708 under "Liabilities no longer required" as part of "Other Income". Out of this amount, the assessee, in its computation of income, reduced an amount of Rs. 1,88,42,329, comprising the following [Ref: Pg. 194 of PPB]: (i) write-back of advance fee of Rs. 1,11,51,558 and Rs. 43,65,848 (aggregating Rs. 1,55,17,406) and (ii) write-back of prepaid franchise fee of Rs. 33,24,923. The assessee follows mercantile system of accounting wherein income is recognised on accrued basis. The accounting ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... it is income u/s 28 and in the second scenario it is income u/s 41(1). (b) In Para 6.5.2, AO has presumed that since the written back of prepaid franchisee recurring fee of Rs 38,36,069/- is income, there is no question of it being claimed as expenditure in the earlier year, as claimed by the assessee. Our Reply: AO has not understood this issue at all and therefore has made additions on presuming the things without taking any clarifications from the assessee. AO did not discuss the issue at all with the assessee during the assessment proceedings and has made the addition at the time of writing the assessment order. The facts here are: (a) here the assessee had shown 'Liabilities no longer required' of Rs. 3,15,79,708/- as income in his P&L account Kindly refer to Page 105 of the Paper Booklet where this item is shown as income in Note 24 of 'Other Income'. (b) That the assessee claimed that out of Rs. 3,15,79,708/- of 'Liabilities no longer required' items of written back of 'advance fee' of Rs. 1,11,51,558/- and Rs 43,65,848 and 'prepaid franchisee fee' of Rs. 38,36,069/- are n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he earlier years. Hence, the provisions of section 41(1) of the Act could not be made applicable at all. No benefit has been derived by the assessee qua this transaction. On the contrary, the assessee has lost the moneys due to absconding of Dubai franchisee. Hence, there is no benefit either in cash or in kind derived by the assessee out of this transaction. Hence, the provisions of section 28(iv) of the Act also could not be made applicable. Accordingly, the Ground No. 4 raised by the assessee is allowed. 6. Ground No. 5 raised by the assessee is challenging the confirmation of disallowance of loan processing charges in the sum of Rs. 19,04,795/-. 6.1 We have heard the rival submissions and perused the material available of record. During the year under consideration, the assessee paid Rs. 19,04,795/- as loan processing charges to Kotak Mahindra Bank for the purpose of obtaining loans/overdraft facility from the bank and claimed the same as revenue expenditure. The loan sanction letter is enclosed in Page 197 to 204 of the Paperbook. The Ld. AO sought to disallow the same on the ground that it is capital in nature as the loan period is for longer duration and it creates end....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... CIT vs Ansal Landmark Townships Private Limited reported in 377 ITR 635 (Del). Accordingly, we direct the Ld. AO to delete the disallowance made u/s 40(a)(ia) of the Act in respect of royalty expenditure of Rs. 14,33,356/-. 7.2 With regard to Advertisement/Publicity and Business Promotion Expenditure of Rs. 7,48,366/-, the same were paid to the following parties:- S. No. Name of Parties Amount 1 KBS Offset Rs. 1,43,398/- 2 Action Printers Rs. 3,13,645/- 3 Embarquers, Kolkatta Rs. 1,51,323 4 Incane Labs Pvt. Ltd. Rs. 1,50,000/- Total Rs. 7,48,366/- The aforesaid payments were made admittedly without deduction of TDS hence, the Ld. AO proceeded to disallow the same u/s 40(a)(ia) of the Act which was upheld by the Ld. CIT(A). The Ld. AR before us submitted that only 30% disallowance should have been made as against 100% disallowance. On perusal of the provisions of section 40(a)(ia) of the Act, we find that 30% disallowance was proposed only from 01.04.2015 and the same cannot be made applicable for the year under consideration. Similar issue was subject matter of consideration by the Hon'ble Supreme Court of India wi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... submissions and perused the material available on record. During the year under consideration, the assessee claimed deduction on account of bad debts written-off in respect of amounts not recoverable from various students which were duly written in the books of accounts. It was submitted that the income corresponding to such debts had already been recognised and at the time of enrolment of students in accordance with the consistent policy adopted by the assessee. Accordingly, it was pleaded that the claim of deduction of the assessee is in compliance to provisions of section 36(2) r.w.s 36(i)(vii) of the Act. The Ld. AO in the course of assessment proceedings sought to examine the veracity of the claim of bad debts written-off by the assessee. The assessee gave the list of 3,500 students from whom moneys were not recovered and which were subject matter of total claim of bad debts written-off. Out of such list, the Ld. AO selected 11 students and issued notice u/s 133(6) of the Act on a sample basis. Out of this, responses were received only from 2 students wherein one student confirmed that the amount was not paid and the other stated that the amount was paid to another entity (fr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... hence, we modify the order of the Ld. AO and direct the Ld. AO to sustain the disallowance only to the extent of 30% of Rs. 3,21,371/-. Accordingly, the Ground No. 2 raised by the assessee is partly allowed. 12. Ground No. 3 raised by the assessee is challenging the confirmation of disallowance of Rs. 1,18,75,095/- on account of provision for expenses u/s 40(a)(ia) of the Act. 12.1 We have heard the rival submissions and perused the material available on record. As per the consistent accounting practice followed by the assessee, wherefrom the details of the payee(s) with exact sums are not known to the assessee, the assessee would make provisions for expenses at the end of the financial year for which services had already been rendered by the concerned parties to the assessee. Since the exact details of the payee and the amounts thereon are not known to the assessee, credit is not given to the payees' account by the assessee and instead credit is given to provision for outstanding liabilities account. While making this provision, no tax was deducted at source by the assessee. The details of the said provisions for expenses are enclosed in pages 232 to 236 of the Paperbook. I....