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TMI Blog2004 (5) TMI 280X X X X Extracts X X X X X X X X Extracts X X X X ..... ision for liability which does not exist or which cannot be quantified during the year under consideration and, therefore, the same cannot be termed as expenditure for the purpose of deduction in the computation of income'. She ought not to have confirmed the disallowance of Rs. 17,44,486. 1.2 The learned CIT(A) has failed to appreciate that as per the various conditions of booking, liability for payment of interest had not ceased. 1.3 The CIT(A) has failed to appreciate that as a system of accounting, the provision has been made on a year-to-year basis and also, the excess provision had been offered for tax from year to year and as such, no addition on estimated basis was warranted. 2. Estimated addition on interest provision for the past years: 2.1 In the facts and circumstances of the case, the CIT(A) has erred legally and factually in restoring the file to the AO for the de novo consideration, while concluding that the sum of Rs. 33,99,281 has been included in the computation of the assessee's income and the reason, therefore, cannot be comprehended. Thus, having deleted the addition of Rs. 33,99,281 there was no cause whatsoever to allow the AO to de novo consider the mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first day of the following month, upto the month of intimation for collection of vehicle. Refund of advance together with the interest will be effected by the dealer on behalf of Maharashtra Scooters Ltd., by way of adjustment in the sales invoice. No interest shall be paid in case the order is cancelled for whatever reason. 7. The procedure prescribed by the assessee-company for its dealers about the booking and delivery of the scooters reads as under: "When Priya scooter is ready for delivery, the dealer shall send an intimation writing to the customer by registered post A.D. in the standardised format available with you. The dealer will reserve the scooter for the customer for 14 days from the date of posting the intimation letter. If the customer fails to take delivery of the vehicle offered to him within 14 days as stated above, the dealer may then offer the same to the next allottee as per booking register. However, the first allottee will be allowed to take delivery within 30 days subject to availability of stock. If there is no stock of vehicles, the dealer will deliver a vehicle from the next incoming consignment even after the expiry of 30 days. An extension of 365 da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he books of account from the month of booking upto the end of the immediately preceding year was written back and was offered for tax as the income of the year of cancellation. He clarified that in actual practice, a booking was cancelled only on a request received by the dealer from the allottee. The information about cancellations was received by the assessee-company from the dealers periodically. He pointed out that in asst. yr. 1989-90 interest of Rs. 37.91 lakhs was written back whereas the addition made by the AO was only of Rs. 17,44,486. The details of interest written back on cancellation of booking and offered for tax for asst. yrs. 1985-86 to 1990-91 are as under: Sr. No. Assessment year Amount (Rs. in lakhs) 1. 1985-86 16.88 2. 1986-87 12.91 3. 1987-88 63.18 4. 1988-89 117.58 5. 1989-90 37.91 6. 1990-91 218.29 Total : 466.74 10. It was contended by Mr. Dastur that the method followed by the assessee had not been found fault with by the AO. He submitted that there was no overwhelming need to interfere with the assessee's method. He urged that the disallowance made by the AO had no basis and that it was totally unworkable. He stated that it will no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was calculated at Rs. 3,48,98,723. The AO accepted as much as 95 per cent of the assessee's claim and disallowed merely 5 per cent worked out at Rs. 17,44,486. The reasons for making this disallowance as discussed in paras 10, 11, 13, 14 and 15 of the assessment order are summarised below: --the provision for interest was made in respect of total bookings including those which had matured during the year and in earlier years and the customers did not turn up before the dealers for taking delivery of the scooters. --the terms and conditions provide that once the customers default in taking the delivery after the maturity of the allotment within a period of 30 days, he foregoes his right of making the claim for delivery and also interest on his deposit. --5 per cent of total of Rs. 3,48,98,723 was nothing but setting aside of the money for adjustment against the delivery of the scooters in case the customers having defaulted turned up in future. 15. The CIT(A) has also made more or less identical observations in para 6 of his order as under: "Having given considerable thought to the facts and circumstances as narrated above, I am inclined to agree with the findings of the AO tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no doubt says that if an allottee failed to take delivery of the vehicle within one year then his order should be cancelled. It was pointed out by Mr. Dastur, the learned Authorised Representative of the assessee, that the expression used was 'should be cancelled' and not 'should stand cancelled'. Further, item No. (i) of the 'conditions' forming part of the application form says that 'no interest shall be paid in case, the order is cancelled for whatever reason'. It was explained by Mr. Dastur that in actual practice the bookings were not cancelled even if the allottees failed to take the delivery of vehicles much after the extended period of one year and that in such cases even if a customer came after one year, he was given delivery of vehicle along with his deposit and interest thereon. He clarified that this practice was adopted on pure business considerations in all cases without any discrimination. We do not find any material on record to controvert this claim of the assessee's Authorised Representative. 18. It is seen from para 10 of the assessment order that the AO made direct enquiries with a few dealers but he failed to point out a single case of a customer where inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re waiting for the delivery of scooters as in the beginning of the accounting year had not responded to the intimation letter sent by the dealers during the year for the delivery of the scooters. Since as per the instructions issued by the company to the dealer after a period of 30 days, the booking has to be taken as having been deemed cancelled and the customers forgo its right for the delivery of the amount of interest claimed as deduction in the earlier years being adjustable, against the sale price at the time of sale of the scooter is liable to be treated as an income of the assessee on account of cancellation of the booking of the scooter. On these deposits the assessee has claimed a sum of Rs. 33,91,281 as interest in the preceding four years which have to be taken as income of the assessee during the current year being a provision for interest no longer required for payment. Accordingly, the said amount is also taken as part of the income of the assessee company." 22. The CIT(A) in para 7 of her order has observed as under: "...I am unable to comprehend the reasoning given by the AO in arriving at the conclusion that the sum of Rs. 33,91,281 which has been claimed as an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T vs. Distributors (Baroda) (P) Ltd. 1972 CTR (SC) 275 : (1972) 83 ITR 377 (SC) (ii) Sole Trustee, Loka Shikshana Trust vs. CIT 1975 CTR (SC) 281 : (1975) 101 ITR 234 (SC) (iii) CIT vs. Himalayan Tiles & Marble (P) Ltd. (1975) 100 ITR 177 (Bom) --that, alternatively, the interest was earned from an activity which was incidental to the existing business and for this argument; reliance was placed on the following decisions: (i) CIT vs. Paramount Premises (P) Ltd. (1991) 190 ITR 259 (Bom) (ii) CIT vs. Tirupati Woollen Mills Ltd. (1992) 193 ITR 252 (Cal) 25. Shri G.S. Singh, the learned Departmental Representative relied upon the order of the AO and of the CIT(A). The submissions made by him are summarised below: --that the principle of res judicata did not apply to the proceedings under the IT Act. --that Sr. No. 16 of the memorandum of association of the assessee-company does not support the assessee's case. --that the interest income was derived from investment of surplus funds for fixed periods; that the cases relied upon by the assessee's Authorised Representative do not support the case of the assessee. 26. We have considered the rival submissions and have perused the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He stated that these deposits were in the nature of investments and that interest from these investments was rightly assessed by the AO as income from other source. In our opinion, the details available at p. 4 of the paper book I and at p. 27 of the paper book II support the contention of the learned Departmental Representative. It is seen that during the year ending 31st March, 1989, the assessee placed deposits of as larger as Rs. 40.3 crores in only 104 companies. It is also seen that there were on average only about eight transactions in a month and that the denomination of each deposit generally exceeded Rs. 25 lakhs. These facts do not substantiate the argument of Mr. Dastur that the impugned interest was earned from a separate business activity which was of the nature of moneylending. The requisite parameters for the existence of a 'business' as laid down by the Supreme Court in the case of Distributors (Baroda) (P) Ltd., are, in our opinion, not present in this case and therefore, we are not inclined to accept the first argument of Mr. Dastur that a separate business of moneylending was in existence from which the impugned interest was earned. 30. The alternative argument ..... X X X X Extracts X X X X X X X X Extracts X X X X
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