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2011 (11) TMI 479 - AT - Income TaxDeduction u/s.35D - Dis-allowance of preliminary expenses claimed - Held that - Following the order of the Tribunal for the A.Y. 1991-92, matter is restored to the file of AO - Decided in favor of the assessee for statistical purposes. Dis-allowance u/s 14A - expenditure attributable for earning exempt income i.e. dividend and interest on bonds and debentures - Held that - Assessee had sufficient own as well as interest free funds to make the investment in the shares, bonds and debentures. The total tax free investment in all the years is much below the paid up capital and reserves available with the assessee-company. Further, nowhere it is controverted by the Revenue that the basic object of the assessee was not to earn the dividend by holding the shares as an investment and shares were also held as stock-in-trade as part of the business of the assessee company. It is clear from the orders of the A.O. that all the dis-allowances are made on ad hoc basis. Therefore, dis-allowances are hereby deleted - Decided in favor of the assessee Computation of book profit u/s 115JA - whether the expenditure attributable for earning the exempt income or income which does not form part of the total income is to be added ? - Held that - In all the assessment years the expenditure attributable to the dividend as well as interest income claimed exempt u/s 10(33) and 10(23G) respectively was added while computing the book profit. The said issue is decided in favour of the assessee and no expenditure is treated as attributable for earning the exempt income i.e. dividend or interest claimed u/s.10(23G). This issue does not survive - in favour of assessee. Loss on conversion of the shares - whether the same pertains to the A.Y. 1996-97 or 1998-99 - shares/securities converted as stock-in-trade on 6.10.1995 - Held that - In the present case the cost of acquisition of the shares being stock in trade on the date of conversion was Rs.340 which was reduced to Rs.257.50 as on 31.3.1996. Loss suffered of Rs.82.50 per share for the previous year relevant to the AY 1996-97. However, loss to the extent of Rs.25.50 per share was only claimed by the assessee. The balance loss of Rs.57 per share has been claimed in the AY 1998-99 which cannot be allowed being pursuant to the AY 1996-97. Therefore, restore the matter back to A.O. - Decided in favor of the revenue. Interest income claim of exemption u/s.10(15) - CIT(A) allowed the claim - Held that - As decided in Goetze (India) Ltd. vs. CIT 2006 (3) TMI 75 - SUPREME COURT claim for deduction not made in the return cannot be entertained by the A.O. otherwise than by filing a revise return and hence, the view taken by the A.O. is correct. At the same time, the Tribunal has power to admit any new claim as per the principles laid down in the case of National Thermal Power Co. Ltd. 1996 (12) TMI 7 - SUPREME COURT and the same has been clarified in the case of Goetze (India) Ltd. (supra). Therefore, uphold the order of the CIT (A) and confirmed the directions - against revenue. Addition u/s 41(1) - dividend received on the shares sold to the purchaser of the shares - Held that - This liability was outstanding for the last three years and is an amount payable to third parties on account of their income having been received by the assessee. The liability was no created on account of any expenditure debited by the assessee in any of the previous accounting years. As per the provisions of section 41(1) addition to the income can only be made if the extinguishment is of the liability which was created due to any expenditure claimed as deductible to arrive at the taxable income of the assessee. The learned CIT(A) therefore, deleted the addition made u/s 41(1) - Decided in favor of Assessee. Treatment of lease equalization reserves while computing the book profit u/s 115JA - Held that - CIT(A) rightly held that book profit cannot be increased by making the addition of the Lease Equalization Reserves on the ground that same cannot be said to represent a reserve or an appropriation of profits. Lease equalization charges was therefore held as a proper charge on the profits by way of recoupment of the assets leased and represented additional depreciation - Decided in favor of assessee. Claim of bad debt - Dis-allowance as assessee failed to establish that the debt written off has become bad - Held that - As decided in TRF Ltd. vs. CIT (2010 (2) TMI 211 - SUPREME COURT) w.e.f. 01.04.1989 in order to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish that the debt, in fact has become irrecoverable. It is enough of the bad debt is written off as irrecoverable in the accounts of the assessee - in favour of the assessee
Issues Involved:
1. Disallowance of expenditure claimed under Section 35D. 2. Disallowance of expenditure attributable to earning exempt income (dividend and interest on bonds/debentures) under Section 14A. 3. Computation of book profit under Section 115JA. 4. Loss on conversion of shares. 5. Exemption of interest on Gold Bonds under Section 10(15). 6. Addition under Section 41(1) regarding dividend received but payable to others. 7. Treatment of lease equalization reserves while computing book profit under Section 115JA. 8. Disallowance of claim of bad debt. Detailed Analysis: 1. Disallowance of Expenditure Claimed under Section 35D: The assessee claimed deductions under Section 35D for the assessment years 1998-99 to 2001-02. The Assessing Officer (A.O.) disallowed the claims based on past assessments, except for minor preliminary expenses. The Tribunal restored the issue to the A.O. for reconsideration, following the Tribunal's directions in the assessee's own case for earlier years. 2. Disallowance of Expenditure Attributable to Earning Exempt Income (Section 14A): The A.O. disallowed a portion of interest expenditure, attributing it to the earning of exempt income (dividend and interest on bonds/debentures) for the assessment years 1998-99 to 2001-02. The assessee argued that it had sufficient own funds for investments. The Tribunal found that the assessee had sufficient interest-free funds and deleted the disallowances, following the principle that if interest-free funds are available, it should be presumed that investments were made from such funds. 3. Computation of Book Profit under Section 115JA: The issue was whether expenditure attributable to earning exempt income should be added while computing book profit under Section 115JA. The Tribunal ruled in favor of the assessee, stating that no expenditure should be treated as attributable for earning exempt income. 4. Loss on Conversion of Shares: The A.O. disallowed the loss claimed by the assessee on the conversion of shares from investment to stock-in-trade. The Tribunal upheld the A.O.'s decision, interpreting Section 45(2) to mean that loss should be recognized in the year of conversion, not in subsequent years. 5. Exemption of Interest on Gold Bonds (Section 10(15)): The A.O. rejected the assessee's claim for exemption of interest on Gold Bonds, stating it should have been claimed through a revised return. The Tribunal upheld the Ld. CIT (A)'s direction to allow the claim, exercising its power to admit new claims as per the principles laid down in the case of National Thermal Power Co. Ltd. 6. Addition under Section 41(1) Regarding Dividend Received but Payable to Others: The A.O. added the amount of dividend received but not paid to others as income under Section 41(1). The Tribunal, following its decision in the assessee's case for previous years, confirmed the Ld. CIT (A)'s deletion of the addition, stating that Section 41(1) applies to liabilities created from deductible expenditures, not to unclaimed dividends. 7. Treatment of Lease Equalization Reserves While Computing Book Profit (Section 115JA): The A.O. added lease equalization reserves to book profit under Section 115JA. The Tribunal, following its earlier decision in the assessee's case, confirmed the Ld. CIT (A)'s ruling that lease equalization reserves should not be added to book profit, as they represent additional depreciation. 8. Disallowance of Claim of Bad Debt: The A.O. disallowed the assessee's claim of bad debt, stating the assessee failed to prove the debt had become bad. The Tribunal, citing the Supreme Court's decision in TRF Ltd. vs. CIT and other judgments, confirmed the Ld. CIT (A)'s deletion of the disallowance, stating that writing off the debt in the books is sufficient for claiming bad debt. Conclusion: The Tribunal's order addressed multiple issues across different assessment years, providing detailed reasoning for each decision. The Tribunal generally favored the assessee, particularly on issues related to Section 14A disallowances, book profit computation under Section 115JA, and bad debt claims, while upholding the A.O.'s stance on the timing of recognizing losses on share conversions.
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