2012 (7) TMI 736 - AT - Income Tax

Grant reliefs as per the BIFR s order - DR submitted since the department was not made a party to the BIFR proceedings, therefore no effect can be given to the same - Held that - Wherever the order of the BIFR in an approved scheme of reconstruction/rehabilitation directs that the reliefs be allowed under the Income Tax Act the effect to such orders be given immediately. It is only when BIFR recommends that the relief under Income Tax Act 1961 may be considered by the Central Government and the Department is not a party or no chance is given to the department to support its views, then the effect of BIFR recommendations is to be given only after such recommendations are considered by the CBDT - An examination of the BIFR order shows that the same is directory and not recommendatory in nature. Further after the original order was passed by the BIFR on 16-12-1999 the department has objected for not giving any opportunity for which the BIFR issued notice for draft modification. Despite such opportunity given the department sought adjournment which was not accepted by the BIFR and passed the final order on 19-08-2003. Therefore, it cannot be said that the department was not given any opportunity - direction given by the BIFR is binding on the Assessing Officer - merit in the submission of the learned counsel for the assessee that if the reliefs are denied now the department has to provide a solution to the assessee as how to undo the amalgamation - in favour of assessee. Dis allowance of Expenditure incurred for earning dividend income - Held that - There is no finding given by the AO that assessee has incurred any expenditure on account of interest on borrowed capital for earning the tax free dividend income. Further the submission of the assessee that the assessee has received only 5 dividend cheques amounting to Rs. 4.11 Crores could not be controverted by the learned DR.Thus disallowance of 5% of the dividend income is unjustified - order of the learned CIT(A) restricting the disallowance to Rs. 50,000/- on adhoc basis appears to be reasonable.

Issues Involved:
1. Disallowance of interest claimed.
2. Disallowance of commission expenses.
3. Disallowance of vehicle maintenance expenses.
4. Disallowance of telephone expenses.
5. Deduction under Section 28.
6. Disallowance of miscellaneous expenses.
7. Disallowance of aircraft expenses.
8. Leasehold land written off.
9. Granting reliefs as per BIFR's order.
10. Limiting disallowance out of interest.
11. Expenses incurred for earning dividend income.

Issue-Wise Detailed Analysis:

1. Disallowance of Interest Claimed:
The assessee contested the disallowance of Rs. 68.58 lakhs out of the total disallowance of Rs. 281.69 lakhs made by the AO for diversion of interest-bearing funds to sister concerns without charging interest. The Tribunal restored the issue to the AO for fresh adjudication to ascertain if the advances were made from borrowed funds and to decide as per law after providing the assessee a reasonable opportunity of being heard. The ground was allowed for statistical purposes.

2. Disallowance of Commission Expenses:
The AO disallowed 10% of the commission claimed, amounting to Rs. 6,59,563/-, which was upheld by the CIT(A). The Tribunal, following its earlier decision in the assessee's own case, directed the AO to delete the disallowance, allowing the ground raised by the assessee.

3. Disallowance of Vehicle Maintenance Expenses:
The AO disallowed 2% of vehicle maintenance expenses and proportionate depreciation on motor cars, amounting to Rs. 1,52,654/-, which was upheld by the CIT(A). The Tribunal, following its earlier decision and the Hon'ble Bombay High Court's ruling, directed the AO to delete the disallowance, allowing the ground raised by the assessee.

4. Disallowance of Telephone Expenses:
The AO disallowed 10% of residential telephone expenses, amounting to Rs. 77,297/-, which was upheld by the CIT(A). The Tribunal, following its earlier decision, directed the AO to delete the disallowance, allowing the ground raised by the assessee.

5. Deduction under Section 28:
The assessee did not press this ground, and it was dismissed as not pressed.

6. Disallowance of Miscellaneous Expenses:
The AO disallowed Rs. 2 lakhs on an ad-hoc basis out of Rs. 79,37,337/- claimed under miscellaneous expenses, which was upheld by the CIT(A). The Tribunal, following its earlier decision, directed the AO to delete the ad-hoc disallowance, allowing the ground raised by the assessee.

7. Disallowance of Aircraft Expenses:
The assessee submitted that this ground was decided against them in earlier years. The Tribunal dismissed the ground following the consistent decision in the assessee's own case.

8. Leasehold Land Written Off:
The assessee did not press this ground, and it was dismissed as not pressed.

9. Granting Reliefs as per BIFR's Order:
The AO did not grant reliefs as per the BIFR's order, stating that the Income Tax Department was not made a party to the BIFR's proceedings. The CIT(A) allowed the claim, holding that the BIFR's directions were binding and had to be given effect immediately. The Tribunal upheld the CIT(A)'s order, stating that the directions of the BIFR had to be honoured, and failure to do so would bring legal disharmony.

10. Limiting Disallowance Out of Interest:
The AO disallowed Rs. 2,61,69,558/- out of interest, which the CIT(A) restricted to Rs. 68.58 lakhs. The Tribunal restored the issue to the AO for fresh adjudication in the light of the Tribunal's order for the earlier year, allowing the ground for statistical purposes.

11. Expenses Incurred for Earning Dividend Income:
The AO disallowed Rs. 20,53,048/- being 5% of the dividend income. The CIT(A) restricted the disallowance to Rs. 50,000/-. The Tribunal upheld the CIT(A)'s order, stating that the disallowance of 5% of the dividend income was unjustified and the restriction to Rs. 50,000/- was reasonable.

Conclusion:
The appeals were partly allowed for statistical purposes, with several issues restored to the AO for fresh adjudication, and the CIT(A)'s decisions were upheld in other instances.

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