TaxTMI 
TaxTMI 
2008 (11) TMI 275
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....judication. 3. Vide its ground No. 1, assessee is aggrieved that learned CIT(A) confirmed thrusting of depreciation under s. 32 of the IT Act (in short 'the Act') on the assessee though it had not claimed it for the relevant assessment year amount of depreciation not so claimed came to Rs. 37,352,706. 4. Assessee had in its return mentioned that it was not claiming depreciation under s. 32 of the Act and cited the decision of Hon'ble apex Court in CIT vs. Mahendra Mills (2000) 159 CTR (SC) 381 : (2000) 243 ITR 56 (SC) in support of this. However, AO was of the view that the decision of Hon'ble apex Court in Mahendra Mills was based on provisions of law as it stood prior to amendment by Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986. According to the learned AO, s. 34 was amended w.e.f. 1st April, 1988 and, there being no condition for furnishing of the particulars for claiming depreciation, thereafter, assessee had no option in the matter of claiming depreciation. In this view of the matter, depreciation amounting to Rs. 3,73,53,706 was thrusted upon the assessee and the WDV directed to be recomputed accordingly. 5. Assessee in its appeal before learned CIT(A) ....
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.... from 1st April, 2002. Again, Hon'ble Kerala High Court in the case of CIT vs. Kerala Electric Lamp Works Ltd. (2003) 183 CTR (Ker) 182 : (2003) 261 ITR 721 (Ker) has held that Expln. 5 to s. 32(1) having come into effect only from 1st April, 2002 and assessee having not claimed depreciation for earlier years, AO was not justified in thrusting such depreciation on the assessee. 9. Learned Departmental Representative was unable to point out any decision directly on the issue which went against the decisions of Hon'ble Madras and Hon'ble Kerala High Court. Therefore, we are of the opinion that assessee has to succeed in its ground No. 1. AO is directed not to thrust the depreciation amounting to Rs. 3,73,53,706 which was not claimed by the assessee for the impugned year. Ground No. 1 of the assessee is allowed. 10. Vide its ground No. 2, assessee is aggrieved that service charges realised for various services, under corporate agreements relating to the commercial premises let out by it, was considered to fall under the head 'Income from other sources'. Assessee had treated such income under the head 'Income from house property'. 11. When the matter came up, it was pointed out by t....
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....ing investments. 14. Learned AO was of the opinion that borrowed funds were employed for business as well as investments and interest relating to the borrowings utilized for investments in shares had to be disallowed under s. 14A of the Act. Finding of the AO was that there was blending of funds between borrowed as well as own funds and therefore, he made disallowance out of the total interest paid, in the ratio of investments in shares to total capital employed. 15. Before learned CIT(A), assessee strongly assailed this disallowance. Assessee submitted that it had furnished to the AO full and detailed justification to prove that investments were made out of assessee's own funds. Assessee also cited s. 372(4) of Companies Act, 1956 which specified that corporate bodies coming under the purview of the Act had to seek Central Government's approval for making investments in other companies. According to the assessee it was granted such approval on the condition that it would not resort to any borrowings for the purpose of such investment. Further, as per the assessee, statutory auditors had also verified the compliance with the Government conditions. Learned CIT(A), however, came to....
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....f such investments. For invoking s. 14A the first condition is that expenditure should be incurred by the assessee in relation to such income which does not form part of the total income. As long as no such expenditure is involved, in our opinion, there cannot be a disallowance under s. 14A of the Act. In this view of the matter, we delete the disallowance of Rs. 76,15,000, being the notionally attributed interest expense relatable to the investments in shares and units. Ground No. 3 of the assessee, therefore, stands allowed. 19. Vide its ground No. 4, assessee raises the issue of loan refunded by one M/s Premium Granite Ltd. (PGL in short) to the assessee being treated as part and parcel of the sale consideration received by the assessee from one M/s Zass Exports (P) Ltd. (in short ZES) for transfer of shares held by it in PGL to M/s ZES resulting in a reduction of its claim of capital losses, both long-term and short-term. 20. Short facts are as under: Assessee along with M/s Voltas International Ltd. (VIL) had promoted a company called PGL for manufacture of granite tiles, granite slabs etc. with registered office at Chennai as a 100 per cent EOU. Together, they held 97 per ....
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....t there was equity contribution from M/s VIL also in M/s PGM during the above period. In addition to the equity, M/s PGL had also raised rupee as well as foreign currency from various financial institutions for financing its project costs. The financial institutions by agreement dt. 4th June, 1992 with promoters of M/s PGL i.e., assessee and M/s VIL stipulated that the directors would not transfer or assign their shares in PGL and would provide additional funds to M/s PGL as and when required. M/s PGL issued 5,00,000 equity shares also to the financial institutions, on which there was an undertaking by the assessee to buy back at Rs. 10 per share or at issue price + 21 per cent interest after deducting gross dividend, whichever was higher. Said M/s PGL continuously made losses due to various reasons on account of severe competition, defects in raw materials supplied etc. and was referred to BIFR. By the end of financial year 1998-99, the accumulated losses were much more than the share capital resulting in a negative net worth of 1,610.97 lacs. Promoters viz., assessee and M/s VIL, therefore, decided to divest its holdings in M/s PGL and advertised in newspapers for this. Neverthel....
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....p; ----------- 22. Assessee in its return of income for the impugned assessment year computed long-term capital loss of Rs. 9,76,97,150 and short-term capital loss of Rs. 11,04,30,399 on the sale of M/s PGL shares to M/s ZES. Sale price was taken at Re. 1 for computing the above capital loss. For arriving at the long-term capital loss, 54,96,520 number of equity shares acquired by the assessee company in M/s PGL during financial years 1990-91 to 1995-96 at a purchase cost of Rs. 6,22,29,550 was indexed to Rs. 9,76,97,150. For working out the short-term capital loss, 11,49,304 number of equity shares purchased in financial year 1999-2000 at a cost of Rs. 11,04,30,400, was taken as such. AO was of the opinion that the entire transaction of shares which were acquired prior to 31st March, 1999 were non-genuine in nature. As for the shares purchased in previous year 1999-2000, AO was of the opinion that the acquisition price of Rs. 11,04,30,400 could only be considered as amounts advanced to M/s PGL and not as purchase cost of such ....
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....o conduct an enquiry about the genuineness of the transactions between M/s PGL and ZES and learned CIT(A) obtained such report which inter alia stated that the sum paid by M/s ZES to the assessee by way of discharging the liability of M/s PGL was Rs. 540 lacs and Re. 1. It was also stated by the AO of MI s ZES that the transactions of M/s ZES with M/s PGL were recorded in the books of M/s ZES and no abnormal cash flows were found. Learned CIT(A) after considering the contentions of the assessee and the report of the AO of M/s ZES, came to a conclusion that transactions were not paper transactions. According to him, cost incurred by assessee for acquiring the shares could not be disbelieved, though for the rights issue, shares were acquired at a higher cost when compared to the negligible book value. However, according to the learned CIT(A), the amount of Rs. 540 lacs introduced by ZES into M/s PGL was only a part of the consideration for acquiring the shares and assessee had taken advantage by getting refund of its loans to M/s PGL from this amount, which otherwise would have become irrecoverable. According to the learned CIT(A), assessee could not even claim such irrecoverable loa....
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....sp; 16,989,560 100.00 30,010,273 ----------- ------ ----------- (e) Long-term capital loss Indexed cost Sale consideration Long-term loss Rs. 9,76,97,116 Rs. 97,08,323+1 Rs. 8,79,88,792 (d) Short-term capital loss No. of shares Cost of purchase Sale price Short-term capital (Rs.) (Rs.) loss (Rs.) 1,09,93,040 10,99,30,400 5,00,000 (Note) 5,00,000 --------------- ------------ 1,14,93,040 11,04,30,400 2,03,01,950 9,01,28,450" --------------- ------------ (Note: This is the 5,00,000 shar....
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.... PGL was not effectively receiving any benefits whatsoever, On the other hand, according to him, it incurred loss of interest. Therefore, it was submitted that, considering the funds used by M/s PGL for repayment of its liabilities as a part of consideration for transfer of shares was gross injustice. According to him, the learned CIT(A) after concluding that these were not paper transactions ought not have held that such amount of Rs. 540 lacs was also a part of the sale consideration for transfer of shares. He specifically brought to our attention paper book page No. 4.15 which was a letter of the assessee to financial institutions whereby it had undertaken to buy back 5 lac equity shares which the financial institutions had subscribed in M/s PGL, at a face value of Rs. 10 or at face value + 20 per cent whichever was higher, at the option of the financial institutions. Learned counsel also brought to the attention of the Bench the undertaking dt. 4th June, 1991 vide paper book pp. 4.92 to 4.98 by which assessee committed not to transfer or dispose of its holding in M/s PGL and to finance shortfall of its funds. Learned counsel specifically pointed out the MoU dt. 10th Sept., 1999....
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....isputed facts emanating out of the history of the case mentioned in the preceding paras and the above records are as follows: (i) The promoters of M/s PGL were assessee and M/s VIL. (ii) Assessee had acquired equity shares of M/s PGL in various years starting from financial year 1990-91 to financial year 1999-2000 as mentioned at para 20 above and the total number of shares so acquired came to 1,69,89,560. (iii) Out of the above, apart from 4,900 shares acquired in financial year 1994-95 for Rs. 1,23,250; 4,13,160 shares acquired in financial year 1993-94 for Rs 1,03,81,000; 62,200 shares acquired in financial year 1995-96 for Rs. 15,62,700 and 5,00,000 shares acquired from financial institutions in financial year 1999-2000 for Rs. 5,00,000, all other shares of M/s PGL were acquired by the assessee at the face value of Rs. 10 per share. (iv) 5,00,000 shares acquired from financial institutions at Re. 1 per share was a part of its one-time settlement with regard to its commitments with financial institutions for the financial accommodations given by them to M/s PGL. (v) Assessee had subscribed to a rights issue of M/s PGL in March, 1999 and acquired again 1,09,93,040 shares, as....
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....----- 1993-94 531.00 161.90 369.10 944.04 24.84 -------------------------------------------------------------- 1994-95 531.00 138.87 392.13 1,046.97 23.03 -------------------------------------------------------------- 1995-96 790.80 461.32 329.48 789.15 (322.45) -------------------------------------------------------------- 1996-97 957.26 1,060.35 (103.09) 899.83 (599.03) -------------------------------------------------------------- 1997-98 957.26 1,926.41 (969.15) 476.72 (866.02) -------------------------------------------------------------- 1998-99 957.26 2,568.23 (1,610.97) 226.78 (641.82) ....
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....ce was used by the assessee through these transactions so as to evade, or for that matter, avoid any taxes. None of the transactions were alleged to have been entered into a pre-planned manner without commercial objective. In fact M/s ZES who acquired M/s PGL was not a related party at all. Therefore, in our opinion, learned CIT(A) fell in error when he added Re. 1 consideration received by the assessee from M/s ZES, to the sum of Rs. 540 lacs infused by ZES into PGL as a part of the consideration for the equity shares transferred. In the result, we have no hesitation to hold that the consideration for transfer of shares was nothing but Re. 1 as stated in the MoU entered into by the assessee and M/s VIL with M/s ZES. In fact, Shri A.K.G. Majeed, managing director of the ZES was examined by the AO of M/s ZES in relation to these transactions and in his report, it was clearly stated that the sum of Rs. 540 lacs paid to M/s Voltas Ltd. was by way of discharging the liability of M/s PGL. It was not anywhere stated that it was a part of the sale consideration received for selling the equity shares. Therefore, we have no hesitation to set aside the order of learned CIT(A) and direct the ....
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....IT(A)'s treatment of loan refunds received by the assessee from M/s PGL, out of money advanced to M/s PGL by M/s ZES, being treated as part and parcel of sale consideration received by the assessee company from M/s ZES, for the sale of the equity shares in M/s PGL to M/s ZES. 40. This ground taken by the assessee here is similar to ground No. 4 taken by M/s Voltas Ltd. in its ITA No. 2102/Mum/2005 for the same assessment year. M/s Voltas International Ltd. was one of the two promoters of M/s PGL. The other being M/s Voltas Ltd. The shares transferred by the assessee to M/s ZES was again for a nominal sum of Re. 1 and the total number of shares so transferred came to 68,87,300. Details of the acquisition of these shares, its transfer and the capital losses as claimed by the assessee are as under: (a) Details of shares acquired by assessee in M/s PGL -------------------------------------- Date of Number of Cost of purchase shares purchase (Rs.) -------------------------------------- 22-3-1991 2,75,000 27,50,000 -------------------------------------- 2....
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....ss sale price 1 ------------------------------------------------------- Long-term capital loss Rs. 4,47,30,432 ------------------------------------------------------- (b) Short-term capital loss: Cost of shares acquired on 30-7-1999 Rs. 4,06,73,000 Less Cost Rs. Nil --------------- Short-term capital loss R....
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.... appeal-Asst. yr. 2001-02-Assessee is Voltas Ltd.) 46. Vide its ground No. 1, assessee is aggrieved that service charges realised for providing various services under composite agreements relating to the commercial premises let out by it was held as assessable under the head 'Income from other sources', though the assessee had treated it as 'Income from house property'. 47. We find that this ground is similar to the ground No. 2 taken by the assessee in its appeal for asst. yr. 2000-01 vide ITA No. 2102/Mum/2005. Vide para 8 above, following the decision of this Tribunal in assessee's own case for asst. yr. 1997-98 and 1998-99, we had dismissed this ground of the assessee. Consequently, for the impugned assessment year also, this ground raised by the assessee is dismissed. 48. Vide its ground No. 2, assessee is aggrieved that learned CIT(A) sustained a disallowance of Rs. 8,64,000 under s. 14A of the Act, being interest notionally attributed to the funds utilized for investments in shares and units. 49. We find that a similar ground was taken by the assessee in its appeal (ground No. 3) for asst. yr. 2000-01 in ITA No. 2102/Mum/2005. We have held at para 18 above that no inter....