9911796707
TMI Blog2012 (9) TMI 826X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the P&L are notional in nature as the same represents the notional value of benefits under EXIM – Held that:- Following the in assessee own case for another assessment years, the issue is decided against the department. Disallowance u/s 43B - PF and employees contribution to the Provident Fund and EPF paid beyond the due date but before the end of the previous year – Held that:- Following the decision of the Tribunal in the earlier years, that no disallowance is called for as the same is covered by the decision of the Alom Extrusions Ltd (2009 (11) TMI 27 - SUPREME COURT), wherein it has been held that the amendment in second proviso is with retrospective effect. Therefore, the amendment takes retrospective effect and accordingly any contribution to approved PF paid before the filing of the return has to be allowed as a deduction. Decision in favour of assessee Whether Excise Duty and Sales Tax is part of total turnover while computing deduction u/s 80HHC – Held that:- Following the decision in case of Lakshmi Machine Works(2007 (4) TMI 202 - SUPREME COURT) wherein it was held that excise duty and sales tax would not have an element of turnover and they ought not to be i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpensatory in nature and not in the nature of penal violation. Decision in favour of assessee Deduction in respect of advances written off – Assessee invest in a project turned out to be non-viable and was thus abandoned before any installation took place – Said expenditure incurred for development of the project was written off during the current assessment year - AO treated the said expenditure as capital expenditure and disallowed the same – Assessee contended that the said expenses incurred were mostly revenue in nature relating to travelling, salary and other administrative expenses – Held that:- Following the decision in the case of Indo Rama Synthetics (I) Ltd (2009 (9) TMI 635 - DELHI HIGH COURT) if the advances are completely in the nature of salary, wages and other administrative expenses as contended by assessee, then the same is to be treated as revenue expenditure. However, this finding is purely subject to verification by the AO. Appeal decided in favour of assessee subject to verification by AO Deduction of demerger expense u/s 35DD - AO did not grant deduction u/s 35DD in respect of 1/5th pertaining to the relevant AY on the ground that the said expenses were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firmed the said disallowance. 3. Both the parties fairly agreed that this issue has come up for consideration before the ITAT in the assessment year 1996-97, 1997-98, 1998-99 and 1999-2000, wherein this issue has been restored back to the Assessing Officer. The relevant observation of the ITAT in order dated 4-5-2012 for the assessment year 1998-99 and 1999-2000, are as under :- 6. Ground No.5 : Disallowance of interest of Rs.50,57,260/-. The Assessing Officer had discussed this issue in page no. 7 and 8 of the assessment order wherein it was noticed by the Assessing Officer that the assessee had made advances in the form of loans to two subsidiary companies @ 6%. The subsidiary companies are West Coast Oxygen Ltd. and Kamal Jyot Investment Pvt. Ltd. The assessee-company paid interest at the average rate of 16% on the borrowings. Interest expenses were of Rs.28,39,43,707/-. The Assessing Officer required the assessee to explain why the difference of 10% of interest paid should not disallowed. As per the assessment order no satisfactory explanation was furnished. The Assessing Officer relied upon the decision of Allahabad High Court in the case of Saria Sugar Mills P. Ltd. (1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tanding amount in the ordinary course of business and amount of Rs.2,72,583/- on the above amount at 16% was wrongly disallowed. As the issue of disallowance of interest u/s. 36(1)(iii) was restored to the Assessing Officer in earlier years, which we were informed that no order has been passed yet by the Assessing Officer, in the interest of justice, we restore the matter to the file of Assessing Officer for fresh consideration. Assessing Officer is directed to consider the facts, submissions and case law relied on the issue and decide accordingly. The ground is allowed for statistical purposes. Thus, respectfully following the aforesaid decision, this issue is restored back to the file of the Assessing Officer as per the direction given in the aforesaid order. In the result, this ground is allowed for statistical purposes. 4. Ground No.2 relates to disallowance of expenditure on ad hoc basis at the rate of 10%, made under Section 14A in respect of expenditure incurred for earning exempt income. During the relevant year, the assessee had earned dividend income amounting to Rs.32,71,963/- and income from units amounting to Rs.47,52,000/- which was claimed as exempt under Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the previous year relevant to assessment year 2000-01, the company has paid an aggregate amount of Rs.61,49,373/- in respect of items covered under section 43B. The aforesaid amount has been considered as prepaid and has not been debited to the Profit and Loss Account. Accordingly, the said amount has been deducted while computing the total income since it has been paid during the previous year and is allowable under section 43B. The Assessing Officer rejected the said contention on the ground that only expenses incurred during the year can be allowed under Section 43 B. Before the CIT(A), it was reiterated that as per the provision of Section 43B, deduction should be allowable in the year in which the sum is actually paid, irrespective of the year in which the liability to pay such sum is incurred according to method of accounting regularly employed by the assessee. The details of items covered u/s. 43B not debited to the Profit and Loss Account but paid in the previous year were filed before the CIT(A). The Ld. CIT(A) too rejected the contention of the assessee and held that deduction under Section 43B could be allowed only in respect of items debited to the Profit and Loss A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und No.4, the assessee has challenged the disallowance of Rs.3,27,823/- in respect of claim of deduction of Wealth Tax Payment. The assessee fairly admitted that this issue is covered against the assessee in the assessee s own case for the assessement year 1998-1999 and 1999-2000 by the order of ITAT and also the decision of Mumbai Bench in the case of Bachcharj Factories Ltd. Vs ACIT (56 ITD 225) (Bom). The relevant observation of the ITAT in the assessee s appeal for the earlier years are as under:- 28. Ground No.11 pertains to claim of wealth tax payment of Rs.1,72,123/-. Even though it was contended that provisions of section 40a(iia) are not attracted on the ground that Explanation to section 40a(iia) specifically excludes any tax chargeable with reference to the value of any particular asset of the business or profession, it was fairly conceded that this issue is decided against the assessee by the Coordinate Bench in the case of Bacharaj Factories Ltd. vs. ACIT 56 ITD 225 (Bom.). In view of the above, we uphold the Order of the CIT(A) and dismiss the ground raised by the assessee. Thus, respectfully following the above decision, this issue is decided against the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Exports. Out of the aforesaid amount, the pass book benefit in respect of which credit had not been received upto 31st March, 2000 amounted to Rs.3,09,13,702/-. Though in the return of income, the entire aforesaid amount was offered for tax out of abundant caution, it was also contended that income in respect of Pass Book benefit does not accrue until credit is received in the Pass Book and accordingly, the said amount cannot be taxed in this assessment year. 11. Learned CIT (A) following the appellate order for the assessment year 1999-2000 and deleted the addition. 12. Both the parties at the very outset, admitted that this issue has been decided by the Hon ble Bombay High Court in the assessee s own case for the assessment year 2001-2002 and 2004-2005. Even the ITAT in the assessment year 1999-2000, following the High Court judgment has deleted the addition. 13. We have carefully perused the material on record and the decision relied upon by the parties. It is observed that this issue has been decided in favour of the assessee by the ITAT vide order dated 4-5-2012, wherein the Tribunal, inter alia, relying upon the decision of the Bombay High Court, has held as under :- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Provident Fund and employees contribution to the Provident Fund and EPF, on the ground that the same was paid beyond the due date but before the end of the previous year. The said amount was disallowed under Section 43B read with Section36(1)(va). The CIT(A) had deleted both the additions made on account of employees contribution to Provident Fund and EPF as the same was paid within the grace period and also employer contribution as the same were paid after the due date but before the end of the financial year. 16. It has been admitted by both the parties that this issue has been decided by the Hon ble ITAT for the assessment year 1998-1999 1999-2000 following the decision of Hon ble Supreme Court in the case of CIT Vs. Alom Extrusions Ltd, reported in 319 ITR 306(SC). Thus, respectfully following the decision of the Tribunal in the earlier years, we hold that no disallowance is called for as the same is covered by the decision of the Hon ble Supreme Court, wherein it has been held that the amendment in second proviso is with retrospective effect. The relevant finding of the ITAT for the sake of ready reference is reproduced herein below :- 33. Ground No. 3 and 11 pert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 45 ITR 769 has been contested by the department before the Hon ble Supreme Court of India. Now, this issue is settled by the Hon ble Supreme Court in the case of Laxmi Machine Works 290 ITR 667 (S.C.) wherein it was held that excise duty and sales tax would not have an element of turnover and they ought not to be included in the total turnover or export turnover. In view of the Judgment of the Hon ble Supreme Court affirming the jurisdictional High Court order, we do not see any reason to interfere with the Order of the CIT(A). Ground No. 3 to 5 are rejected. Hence, following the aforesaid decision, the department s ground No.4 is dismissed. 18. Ground No.5, relates to exclusion of other income from the total turn over for the purpose of deduction under Section 80HHC. The Assessing Officer has included the items of other income like dividend, interest, royalty and technical fees, rent, sales-tax refund etc. aggregating to Rs.8,27,783/- and miscellaneous items of Rs.26,06,525/-as part of total turnover. The CIT(A) following the decision for the assessment year 1997-1998, held that all the other items aggregating to Rs.8,27,783/- will be excluded from the total turn over under S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turnover, similar logic also applies to the other incomes which does not have any bearing on the export turnover and total turnover, while working out the deduction under section 80HHC. Therefore, this ground of the assessee is allowed and Assessing Officer is directed to exclude the amounts shown in the other income under the head rent, interest, brokerage and sales tax refund and on the balance items as the ground was not pressed, no directions are required. Ground is partly allowed. However, in this year, an amount aggregating to Rs.26,06,525/- as admitted by Ld. AR on behalf of the assessee, relating to miscellaneous items will form the part of the total turn over, to that extent, department s ground would be partly allowed. 20. Ground No.6, relates to exclusion of export proceeds not realized upto 30-9-2000 from the total turn over for the purpose of deduction under Section 80HHC. The Assessing Officer has included the amount of export proceeds upto 30-9-2000 amounting to Rs.1,76,07,571/- in the total turn over while computing the deduction under Section 80HHC. The Ld. CIT(A) agreed with the contention of the assessee and held that the said amount which has not been re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness receipts and need not be excluded while arriving at the profits of business under baa. Accordingly, Revenue ground is rejected. Thus, respectfully following the aforesaid decision, ground No.7 as raised by the department is dismissed. 23. Ground No.8, relates to reducing the profits of foreign branch while computing the profits of business for the purpose of computing the deduction under Section 80HHC. The Assessing Officer while computing the deduction under Section 80HHC has not reduced the profit of foreign branch (ANTWERP), while computing the profits of the business as per Clause (baa) of Explanation below Section 80HHC(4B). The CIT(A) directed the Assessing Officer to reduce the profit in view of the express provisions of Section 80HHC as per clause (baa) of the Explanation. 24. We have perused the impugned orders and also heard the rival submissions of the parties. Sub Clause 2 of Clause (baa) to Explanation reads as under :- (baa) "profits of the business" means the profits of the business as computed under the head "Profits and gains of business or profession" as reduced by (1) x x x x x (2) the profits of any branch, office, warehouse or any other e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id down therein, we do not see any reason to interfere with the Orders of the CIT(A) which is according to law. Since this issue was also confirmed by the I.T.A.T. in earlier years, which the CIT(A) has followed, the Revenue ground is rejected. Thus, in view of the above, ground No.10 of the department is dismissed. 27. Ground No.11, relates to deduction of Rs.6,73,258/- being penalty levied under Section 45(6) of the Gujarat Sales Tax Act. The Assessee has claimed for deduction of amount of Rs.6,73,258/- being expenditure on fines and penalties. It has been submitted that during the previous year (the relevant assessment year 2000-01), the assessee had incurred expenditure in respect of fine and penalty aggregating to Rs.7,09,205/- under the Gujarat Sales Tax Act. The details of which has been given in Annexure-XVI of the Tax Audit Report. In the return of income, the said amount was added due to abundant caution, however, in the Note No.2, it was submitted that the nature of fines and penalties, were compensatory in nature and ought to be allowed as a deduction in view of the decision of the Hon ble Supreme Court in the case of Prakash Cotton Mills Ltd., reported in 201 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme of arrangement of demerger of Excel Crop Care Limited with assessee company was w.e.f. 1-9-2003 in pursuance of order of the Hon ble High Court dated 18-7-2003. In pursuance thereof, the account was prepared by bifurcation of the income and expenses of the two entities according to the scheme of the arrangement. Some of the assets have been put to common use but under the scheme of arrangement, was belong to the assessee from the appointed date. This was because of the fact that approval was granted on 18-7-2003 but w.e.f. 1-4-2002, hence, during the year for determining the correct profits, the Assessing Officer observed that the assessee should have charged as income that part of the depreciation which was allocable to demerged entity and similarly the demerged entity should have charged its expenses in its accounts. Thus, according to the Assessing Officer, both the concerns have treated the amounts wrongly as depreciation. The demerged entity however, filed the revised return of income wherein this mistake was rectified and the income under the Act was reduced by the amount of these charges. However, the assessee had not modified the return of income. As per the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ack in the computation of income to arrive at the taxable income. Obviously, on the face of it, the argument of the A.R. appears correct. However, when the facts of the issue in its entirely are considered, the order passed by the A.O. has to be upheld. The A.O. has clearly brought out the fact that the de-merged entity filed a revised return and claimed the said amount of depreciation as deduction from its chargeable income. It needs to be clearly brought out here that although the depreciation component relating to the commonly used assets was not charged to the profit and loss account by the resultant company; nevertheless the resultant company claimed deduction of full depreciation under the Income Tax Rules in respect of the said commonly used assets also on the plea that such depreciation was allowable even if the assets in question were partly used. Thus, assuming that out of total allowable depreciation of Rs.100/-, a sum of Rs.20/- related to depreciation in respect of commonly used assts allocable to the de-merged company, the appellant claimed a depreciation of Rs.100/- under the Income Tax Rules and a further sum of Rs.20/- was claimed as an expense (on account of depre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the net profit which includes claim of depreciation of Rs.8,17,14,918/- and from this net income it has further added the depreciation of the same amount. Thus, apparently there does not seem to be any question of further enhancing the book depreciation or writing back again to the total income. The amount of Rs.61,17,224/- was not debited at all to the profit loss account and accordingly, the question of adding back the same to the total income does not arise. In view of these facts, we do not find any reason to concur with the finding of the CIT(A). Accordingly, we hold that addition of book depreciation allocated to the demerged entity is not called for. Accordingly Ground No.1 is allowed. 31. Ground No.2 relates to disallowance of interest of Rs.69,58,000/-. This issue has been dealt with in the assessee s appeal for the assessment year 2000-2001 in ITA No.2825/2007, wherein the matter has been restored back to file of the Assessing Officer following the decision of this Tribunal s order for the earlier years. Accordingly this issue is also restored back to the file of the Assessing Officer as per the direction given in the aforesaid appeal. Hence, Ground NO.2 is allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or company which was formed with the intention of creating manufacturing facilities to produce phosphorus and its compounds. However, before the project could start or the plants and machinery could be installed, the entire project was abandoned due to its non-viability. As per the contention of the learned AR, the expenses incurred were mostly revenue in nature relating to travelling, salary and other administrative expenses. If these are the expenses the same cannot be said to be have incurred on capital assets or creation of any capital asset. The decision of the Tribunal in the case of DCIT Vs. Mukand Ltd (supra) as relied upon by the AR is squarely applicable in favour of the assessee. The Tribunal has relied upon the decision of the Hon ble Supreme Court in the case of Indo Rama Synthetics (I) Ltd., reported in 320 ITR 3450 (Del). The relevant finding and the observation of the Tribunal are reproduced herein below :- 8. We have considered the rival contentions and relevant record. At the outset, we note that the expenditure which was written off by the assessee was incurred for the development of Madhya Pradesh Steel Plant Project but the said expenditure was incurred in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... event it would be irrelevant as to whether project really materialized or not. However, if the expenditure incurred is in respect of the same business which is already carried on by the assessee, even if it is for the expansion of the business, namely, to start new unit which is same as earlier business and there is unity of control and common fund, then such an expense is to be treated as business expenditure. In such a case whether new business/asset comes into existence or not would become a relevant factor. If there is no creation o f new asset, then the expenditure incurred would be of revenue nature. However, if the new asset comes into existence which is of enduring benefit, then such expenditure would be of capital nature; 11. When we keep in mind the aforesaid find distinction, the conclusion on the facts of this case becomes obvious, the expenditure was incurred in respect of same business which is already carried on by the assessee. Two projects which were undertaken were for the expansion of same business, namely, one for taking over Savitri Cinema for conversion into multiplex and operation and management therefore and other for conversion of Priya Cinema into four- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Rs.25,82,884/-) as deduction under Section 35DD. The Assessing Officer did not grant deduction under Section 35DD in respect of amount of Rs.5,16,577/- being 1/5th pertaining to the assessment year 2004-2005 on the ground that the said expenses were not debited in accounts for the assessment year 2003-2004. 35.1 Before the CIT(A), it was submitted that 1/5th of the expenditure incurred should be allowed for each of the five successive previous years beginning with the previous year for which amalgamation or demerger takes place. Learned CIT(A) dully appreciated the contention of the assessee and the provisions of law and allowed the deduction by observing and holding as under :- 8.6 I have considered the submissions made by the appellant. The plain reading of the section provides a clear view of the above facts and I am of the opinion that as per section 35DD, where an assessee, being an Indian company, incurs any expenditure wholly and exclusively for the purposes of amalgamation or de-merger of an undertaking, the assessee is to be allowed a deduction of an amount equal to one-fifth of such expenditure for each of the five successive previous years beginning with the prev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see s appeal for the assessment year 2000-2001 in ITA No.2825/2007, wherein the matter has been restored back to the file of the Assessing Officer following the decision of the earlier order of the ITAT. In view of this fact, this issue is restored back to the file of the Assessing Officer for fresh adjudication. In the result, ground No.2 is allowed for statistical purpose. 39. Ground No.3 relates to disallowance of interest of Rs.2,24,000/- out of interest paid on other loans. This issue too has been restored back to the file of the Assessing Officer in the earlier orders and following the same, this ground is also set aside and sent back to the file of the Assessing Officer for fresh adjudication. In the result, ground No.3 is allowed for statistical purposes. 40. Ground No.4, is an alternative ground to ground Nos.2 3, hence, the same is not adjudicated as the matter has been restored back to the file of the Assessing Officer. 41. Ground No.5 has not been pressed by the learned AR and, therefore, the same is treated as dismissed. 42. In Ground No.6, the assessee has challenged non-deduction under Section 36(1)(va) in respect of employees contribution to the provident ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
