9911796707
TMI Blog2013 (5) TMI 174X X X X Extracts X X X X X X X X Extracts X X X X ..... me on 29-4-2004 declaring loss of Rs.1,35,070/-. Case was taken up for scrutiny and thereafter the assessment was framed u/s. 143(3) vide order dated 28-12-2006 and income was determined at Rs.2,50,11,834/-. Aggrieved by the order of A.O., assessee carried the matter before the CIT (A). CIT (A) vide order dated 15-10-2007 partly allowed the appeal of the assessee. It is against the aforesaid order of the CIT (A) both the assessee and the Revenue are in appeal before us. 4. Grounds raised by the assessee read as under. "1. The CIT (A) erred in law and on facts in agreeing with the A.O. who treated the sale of mutual funds of Rs.49,901/- and sale of shares of Rs.13,76,338/-(total Rs.14,26,239/-) as speculative profit instead of treating them as capital gains. 2. The CIT (A) erred in upholding the disallowance of claim of Bad Debts of Rs.1,49,76,106/-. 3. The CIT (A) erred in setting aside the issue of RS.37,35,551/- in respect of interest accrued but not due to the file of the A.O. 4.1. The CIT (A)ought not to have disallowed an amount of Rs.16,02,493/- being the interest expenditure under Sec. 36(1)(iii) of the Act. 4.2. The CIT (A) erred in agreeing with the A.O. that the inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that it had taken actual delivery of shares and later on sold the same. There were only a few instances where the shares were sold directly. Assessing Officer noted that for A.Y. 2002-03 and 2003-04 in the case of Surya Laminations Pvt. Ltd., the profits were held as speculative profits. He therefore, following the decisions of earlier years and by invoking the Explanation to sec. 73 held the profit from purchase and sale as speculative profit instead of capital gain. He thus treated the total capital gains including short term and long term of Rs.14,26,239/- as speculative profit. Aggrieved by the action of the A.O. assessee carried the matter before the CIT (A). 6. Before CIT (A), it was submitted that the assessee did not prefer appeal in the earlier years for the reason that the amount involved was very small. It was further submitted that in major instances of sale of shares and mutual funds actual delivery had taken place and therefore it was not a case of earning profits without taking delivery and was therefore not of speculative in nature, CIT-(A)did not accept the contentions of the assessee and by very cryptic order upheld the action of the A.O. 7. Aggrieved b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ete details along with the nature of transactions and reasons for treating the debts as bad. On perusing the details submitted by the assessee A.O. noticed that the assessee did not satisfy the conditions stipulated u/s. 36(1)(vii) r.w.s. 36(2) of the Act, as the assessee did not produce the copy of the relevant account of respective years to show that the amount was taken into account for computing the total income and it had also not produced copy of the account to show that the amounts have been written off in the respective parties account. Thus the A.O. did not accept the claim of the assessee and disallowed the claim of bad debts. 12. Aggrieved by the order of A.O. assessee carried the matter before the CIT (A). CIT (A) after considering the submissions made by the assessee and relying on the decision in the case of Dhal Enterprises (2007) 162 Taxmann 114(Guj) upheld the action of the A.O. by holding as under:- "7. I have considered the rival submissions. It is observed that the A.O. rejected the claim of bad debts for various reasons including, interalia, that the appellant had failed to show that the debt in question had actually become bad. The appellant has shown that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter needs to be examined in the light of decision of the Apex Court. We therefore remit the issue to the file of A.O. with a direction to him to verify the facts in the light of the decision of the Apex Court in the case of TRF Ltd. (supra) and after giving reasonable opportunity of hearing to the assessee and decide the issue as per law. Thus this ground is allowed for statistical purpose. Learned A.R. did not seriously argued ground no. 3 and, therefore, the same is dismissed as not pressed. Fourth ground is with respect to the disallowance of Rs.16,02,493/- being the interest expenditure. Since all the sub grounds are inter connected all are considered together. 18. During the course of assessment proceedings, A.O. observed that assessee has made investment in mutual funds and the investments as on 31-3-2004 was Rs.2,27,05,065/-.Assessee was asked to prove that the investment was made for the business purpose and also show cause as to why the proportionate interest be not disallowed. After considering the submissions of the assessee A.O. noted that in the absence of any fund flow statement and also on account of failure on the part of the assessee to prove that the borrow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given to Ameya Developers, it is observed that the letter now produced from them, which is undated, was not furnished before the A.O. The claim through this letter that the money had been received as advance for booking a flat for the employees of the appellant company remains unsubstantiated particularly in the absence of any other supporting document towards the booking of the flat, any receipt issued by Ameya Developers in this behalf. It is further observed in this regard that Sec. 106 of the Indian Evidence Act or the principles analogous thereto places the burden in respect of the claim that the interest free funds had been advanced for business purposes upon the appellant, as the facts are within its special knowledge. However, in the instant case, the appellant has failed to discharge this burden. It is further observed that the Punjan & Haryana High Court in the case of CIT-I Ludhiana vs. M/s. Abhishek Industries Ltd. in ITA No.110 of 2005 have held in their order dated 4-8-2006 that ".....Sec. 36(1)(iii) of the Act provides for deductions of interest on the loans raised for business purposes. Once the assessee claims any such deduction in the books of accounts, the onus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances, the action of the A.O. in holding that the money was advanced free of interest for non business purpose is confirmed. The action of the A.O. in disallowing the claim of interest of Rs.16,02,493/- is upheld. The appellant's claim in this ground of appeal is dismissed." 20. Aggrieved by the order of CIT (A) the assessee is now in appeal before us. 21. Before us Ld. A.R. submitted that the entire investments have not been made during the year and includes investments brought forward from earlier years. He further submitted that the Assessee had interest free funds in excess of Rs. 10 crore a part of which were invested in mutual funds. It was also submitted that the interest free funds were used for making advance to Ameya Developers for purchase of an office flat which was later on cancelled and the amount was returned. It was submitted that the advances was given for the purpose of business. The Ld. A. R. further submitted a copy of balance sheet which was placed at page 15 of the paper book. From the Balance Sheet he pointed out that the Assessee was having interest free funds comprising of share capital, reserves and interest free funds comprising of unsecured loa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee before the A.O. it was noticed by him that assessee had claimed depreciation on electrical installation at 25%. A.O. was of the view that since all the assets were in the nature of electrical fittings whether used in office or factory premises, the Assessee was eligible for depreciation at 15% and he thus allowed the depreciation at 15% and the excess depreciation worked out at Rs.32,000/- was disallowed and added to the income. 25. Aggrieved by the addition, assessee carried the matter before the CIT (A). CIT (A) upheld the order of the A.O. by holding as under;- "14. As regards Ground No.6, the A.O. allowed depreciation @ 15% on electrical installations as against the appellant's claim @ 25% resulting in the disallowance of Rs.32,000/-. Before me, the appellant has submitted that it was a part of plant and machinery for which it has relied upon the decision of Gujarat High Court in the cases of CIT vs. Elecon Engg. Co.Ltd., 96 ITR 672 and CIT vs. Tarun Commercial Mills Ltd., 151 ITR 75. 15. I have considered the rival submission and have perused the case law. It is observed that the facts in the two cases relied upon by the appellant are very different from the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me was required to be added for computing the book profit. He accordingly added the aforesaid 3 items for the purpose of computing the book profit. 30. Before CIT (A) the assessee did not press the ground and therefore the same was dismissed as not pressed. The assessee is now in appeal before us. 31. Before us the Ld. A. R., submitted that the issue with respect to bad debts is covered in its favour by the decision of Hon'ble Gujarat High Court in the case of CIT vs. Deepak Nitrite Ltd., in Tax Appeal No.1918 of 2009. He placed on record copy of the aforesaid order. With respect to the provision for gratuity and leave encashment he submitted that the issue is covered in its favour in view of the decision of DCM Engineering Ltd. vs. ACIT (2010) 134 TTJ 715 (Del.). He thus submitted following the aforesaid decision the matter be decided in assessee's favour. 32. The Ld. D.R. on the other hand submitted that before CIT (A) assessee did not press this ground and therefore, the present ground does not eminate from CIT(A) order and therefore, it cannot be taken up before the Hon'ble Tribunal. He thus supported the order of A.O. 33. We have heard rival submissions and perused the mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t assessee has claimed Rs.2,54,850/- on account of foreign travel expenses and Rs.12,970/- on account of Membership fees of credit cards. Assessee was asked to furnish the details and show cause as to why the expenses not be disallowed as being not fully and exclusively for the purpose of business. Assessee submitted that the membership fee of Rs.12,970/- was for the Directors of the Company and therefore for the purpose of business and therefore there can be no disallowance. Assessing Officer. was however of the view that since assessee has failed to discharge the onus to prove that the expenditure was wholly and exclusively for the business purpose the same cannot be allowed and accordingly made the disallowance of Rs.2,68,820/-. 37. Aggrieved by the action of A.O. assessee carried the matter before the CIT (A). 38. Before the CIT (A) assessee submitted that during the year the directors of the company visited South Africa for the business purpose but the visit could not result into any business. With respect to the credit card membership fees it was submitted that it was for the business purpose. CIT (A) after considering the submissions of the assessee gave partial relief by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst that of Rs. 28,00,620/- being interest expense attributable to investments in mutal funds out of interest bearing funds by holding that no interest charges were debited in the bank account from which the investment in mutual funds was made except for security transaction of Rs. 64,909/-. [iii] It is, therefore, prayed that the order of the ld. CIT(A) may be set asite and that of the Assessing Officer be restored to the above extent. 1st ground is with respect to disallowance of Rs. 13,89,062/- u/s 14 A:- 43. During the course of assessment proceedings A.O. observed that assessee had shown exempt income of Rs.50,59,675/- comprising long term capital gain of Rs.13,50,412/- and dividend income of Rs.37,09,263/-Assessee was asked to explain as to why the disallowance u/s. 14A should not be made. In response to the query of the A.O. assessee interalia submitted that it did not maintain separate records for the expenses incurred towards earning taxable and tax free income. It was further submitted that CIT (A) while finalizing the assessment for A.Y., 2005-06 had disallowed u/s. 14A of the Act to the tune of 10% of the total exempt income. Assessee also submitted that working o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the findings of CIT (A). In view of these facts we find no reason to interfere with the order of CIT (A) and thus this ground of the Revenue is dismissed. Second ground is with respect to the disallowance on account of interest expenses. 48. During the course of assessment proceedings A.O. observed that the investments in mutual funds as on 31-3-2005 was Rs.2,33,38,500/- .Assessee was asked to prove that the investments have been made for business purposes and further as to why the proportionate interest should not be disallowed. After considering the submissions of the assessee Assessing Officer, was of the view that the assessee has failed to establish that the investments have been made out own interest free funds and thus the assessee has failed to discharge the onus case upon it by the provisions of Sec. 36(1)(iii) of the Act. He further submitted that the assessee has claimed total interest of Rs.2,74,69,075/- as financial charges. In the absence of any fund flow statement he held that the entire amount of Rs.2,33,38,500/- of investments was made out of interest bearing funds. He accordingly worked out the interest expenses at 12% on the total investments and worked out th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action tax of Rs.64,909/-. He thus deleted the addition. Before us the Ld. D.R. could not bring any material on record to controvert the findings of the CIT (A). In view of these facts we find no reason to interfere with the order of CIT (A) and thus this ground of the Revenue is dismissed. 51. In the result, appeal of the Revenue is dismissed. ITA No. 3191/AHD/2010 - A.Y. 2004-05. (Revenue's appeal) The grounds raised by Revenue reads as under:- 1. The leamed C1T(A) erred in law and on facts in deleting the penalty of Rs.4,80,748/- being the amount of tax sought to evaded in respect of disallowance of interest of Rs.18,02,493/- u/s,36(1)(iii) of the Act,, imposed by the Assessing Officer u/s.271(1)(c) of the Act by holding that the issue is best debatable, 2. The teamed CIT(A) erred in law and on facts in ignoring that there was a failure on the part of the assesses to discharge its onus to establish that there existed direct nexus between the interest free funds and the interest free advances and therefore, the case falls under explanation 1 to the section attracting imposition of the penalty. 3, On the facts and in the circumstances of the case, the learned CIT(A) ought to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were first utilized towards interest free advances (Reliance Utilities). In other words the issuer is at best debatable. Moreover it is pointed out by the appellant that appellant had raised interest free unsecured loans of Rs.12.5 crores during the current assessment year and the profit during the year was Rs.2.64 crores and in contrast the investment during the year in the mutual fund was Rs.2.27 crores and to Amiya Developers of Rs.15 lakh. Considering these facts, in my view, penalty is not leviable on disallowance of interest of Rs.16,02,493/-." 53. Aggrieved by the order of CIT (A) the Revenue is now in appeal before us. 54. Before us the Ld. D.R. supported the penalty order of A.O. On the other hand, the Ld., A.R. submitted that the addition was made by the A.O. for an issue which was a debatable. Assessee has not concealed any particulars nor has furnished any inaccurate particulars of income. He therefore, submitted that in view of these facts no penalty can be levied. He further relying on the decision of CIT vs. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158 (SC). 55. We have heard the rival submissions and perused the material on record. CIT(A) while deleting th ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
