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TMI Blog2013 (9) TMI 673X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest relating to investments in shares/mutual funds on proportionate basis. The Assessing Officer noted that debt was 63.66 per cent. of total funds and therefore, he treated 63.66 per cent. of investment in shares and mutual fund as made out of borrowed funds totalling Rs. 88.20 lakhs. He, thus, disallowed interest proportionate to said amount at 11.86 per cent. being average cost of borrowings which came to Rs.1,046.06 lakhs. In appeal the Commissioner of Income-tax (Appeals) noted that out of the investment in shares/mutual funds, current investment was only Rs.2457.61 lakhs and balance amount was the investment made in the earlier years. The Commissioner of Income-tax (Appeals) also noted that out of the current year investment of Rs. 2457.61 lakhs, Rs. 1,057.00 lakhs was the assessee's internal capital contribution to KEC International Ltd. from which the assessee had earned taxable income. The Commissioner of Income-tax (Appeals) therefore, confirmed the disallowance only in relation to Rs. 1,383.22 lakhs after allowing relief in respect of Rs. 1075.00 lakhs. He also allowed relief in respect of opening investment. The assessee has disputed the disallowance in relatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance aggrieved by which, the assessee is in appeal before the Tribunal. We have heard both parties in the matter. The learned authorised representative for the assessee fairly conceded that the issue has to be decided against the assessee in view of the judgment of the hon'ble Supreme Court in the case of IPCA Laboratory Ltd. v. Deputy CIT [2004] 266 ITR 521 (SC). Since the Commissioner of Income-tax (Appeals) has confirmed the disallowance following the judgment of the hon'ble High Court of Bombay in the case of IPCA Laboratories Ltd. [2001] 251 ITR 401 (Bom), which has been upheld by the hon'ble apex court the order of the Commissioner of Income-tax (Appeals) disallowing the claim is upheld. In grounds Nos. 3 to 7, the assessee has raised disputes regarding the Commissioner of Income-tax (Appeals) not adjudicating certain grounds such as exclusion of excise duty, scrap sales, and turnover of overseas branches from total turnover and netting of interest income under Explanation (baa) and dismissing the same as academic as the assessee was not entitled to deduction under section 80HHC. We have heard both parties in the matter. Admittedly the assessee had huge ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 80HHC in terms of provision (viii) of the Explanation to section 115JA. The Assessing Officer held that since there were huge losses and the assessee was not eligible for deduction under section 80HHC, no adjustment was required to be made. The decision of the Assessing Officer was confirmed by the Commissioner of Income-tax (Appeals) aggrieved by which the assessee is in appeal before the Tribunal. We have heard both parties in the matter. The Special Bench of the Tribunal in case of Deputy CIT v. Syncome Formulations (I) Ltd. [2007] 292 ITR (AT) 144 (Mumbai) has held that the profit eligible for deduction under section 80HHC for the purpose of adjustment under section 115JA has to be computed on the basis of adjusted book profit under section 115JA and not on the basis of profit computed under regular provisions of the Act. The said decision of the Special Bench of the Tribunal has been upheld by the hon'ble Supreme Court in the case of CIT v. Bhari Information Tech. Sys. P. Ltd. [2012] 340 ITR 593 (SC) vide judgment dated October 20, 2011 in the Civil Appeal No. 33750 of 2009. In view of this position, the Assessing Officer is directed to compute profit eligible for deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so observed that internal accrual were sufficient to advance the amount to the subsidiary. The Tribunal accordingly deleted the disallowance made. In this year, the disallowance is mostly on account of opening balance which has already been deleted by the Tribunal in the assessment year 1998-99. In the current year, the advance given is only Rs. 8 lakhs which are easily explained from the current profit of Rs. 25.92 crores. We, therefore, see no justification for making the disallowance. The order of the Commissioner of Income-tax (Appeals) is therefore, set aside and addition made is deleted. The dispute raised in ground No. 10 is regarding disallowance of licence fee paid to RPG Enterprises Ltd. The Assessing Officer noted that the assessee had paid licence fee to RPG Enterprises which is a Corporate Centre of the Group consisting of several companies. The Assessing Officer noted from various objectives of RPG Enterprises that the payment was not related to any actual services rendered. He, therefore, held that the expenditure was not incurred wholly and exclusively for the purpose of business and disallowed the same. In appeal, the Commissioner of Income-tax (Appeals) following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , held that the expenditure could not be considered as incurred wholly and exclusively for the purpose of business. Accordingly he confirmed disallowance. Before us, the learned authorised representative for the assessee submitted that professional fees to Mckinsey and Co. had been paid for development of management information system (MIS) in relation to project Shikhar. The details of work done by the company had been given before the Assessing Officer which was available at pages 290 to 294 of the paper book. The payment had been made by cheque on the basis of bills raised by the company copies of which are placed at pages 282 to 289 of the paper book. The bills clearly show that the payment had been made in connection with consulting assignment. The learned authorised representative argued that the claim could not be disallowed only on the ground that the agreement or report was not produced when details of work done had been given and payment on the basis of bills had been made. The learned Departmental representative supported the orders of the authorities below and placed reliance on the findings of authorities below. We have perused the records and considered the rival co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o adverse material in this regard has been placed on record. Therefore, in our view claim which is obviously of revenue in nature cannot be disallowed only on the ground that there were no agreements particularly when the assessee had placed on record the correspondence and report of the consultant regarding various types of consulting assignment being handled by them which was an on-going arrangement. We, therefore do not uphold the order of the Commissioner of Income-tax (Appeals) disallowing the claim. The claim is accordingly allowed. However, from perusal of invoices at pages 284 to 289 we find that total of the amount claimed as per invoices does not match with the total claim of expenditure. This requires verification. We, therefore direct the Assessing Officer to allow the claim after necessary verification of bills and quantum expenditure after allowing opportunity of hearing to the assessee. Ground No. 12 is regarding depreciation allowance. The Assessing Officer noted that the assessee had debited depreciation of Rs. 16,78,38,022 in the profit and loss account which had been added to the total income. The Assessing Officer observed that the assessee was required to dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in judgments to press the claim. The Commissioner of Income-tax (Appeals) however observed that the said judgments relate to the period prior to insertion of the Explanation to section 36(1)(vii) by the Finance Act, 2001. The Commissioner of Income-tax (Appeals) therefore confirmed the disallowance made by the Assessing Officer aggrieved by which the assessee is in appeal before the Tribunal. Before us, the learned authorised representative for the assessee submitted that the Assessing Officer disallowed the claim on the ground that it was only a provision which had not been written off in the individual accounts of the debtors. It was also submitted that the assessee had not written off the debt in the individual account but had reduced the amount written off in lump sum from the debit balance without identifying any individual debt. It was pointed out that such approach has been upheld by the hon'ble Supreme Court in the case of Vijaya Bank v. CIT [2010] 323 ITR 166 (SC). The learned Departmental representative on the other hand argued that the judgment in the case of Vijaya Bank related to the provisions of clause (viii) of section 36(1)(i) and not clause (vii). In reply, the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cessary examination and after allowing opportunity of hearing to the assessee. The second dispute is regarding adjustment on account of disallowance of interest on borrowings allegedly used for investment in shares and mutual fund units under clause (f) to the Explanation to section 115JA(2). Under clause (f) of the Explanation to section 115JA, the amount of expenditure relatable to any income which is exempt is required to be added to the book profit. The Assessing Officer accordingly added the sum of Rs.10.46 crores to the book profit. In appeal the Commissioner of Income-tax (Appeals) has restricted the adjustment to the extent of disallowance of interest confirmed by him against which the Revenue has filed the appeal. We find that this issue has already considered while dealing with ground No. 8 in case of appeal by the assessee and following our decision vide paragraph 11 of this order, we restore this issue to the file of the Assessing Officer for fresh decision as disallowance of interest has already been restored to the Assessing Officer. The dispute raised in ground No. 3 is regarding relief given by the Commissioner of Income-tax (Appeals) in disallowance of int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wability of expenditure incurred in relation to projects where contracts were not awarded. We find that the same issue has already been considered by the Tribunal in the assessment year 1998-99 in which the Tribunal in I. T. A. No. 4862/M/2001 has allowed the claim of the assessee as revenue expenditure. The facts this year are identical as the Commissioner of Income-tax (Appeals) has allowed the claim following the decision in the assessment year 1998-99 which has been upheld by the Tribunal. Therefore, respectfully following the decision of the Tribunal in the assessment year 1998-99, we confirm the order of the Commissioner of Income-tax (Appeals). The fifth dispute is regarding disallowance of voluntary retirement scheme expenditure. The assessee had claimed a sum of Rs. 2.62 crores on account of voluntary retirement scheme (VRS). The Assessing Officer dis- allowed the claim as capital in nature. In appeal the assessee has submitted before the Commissioner of Income-tax (Appeals) that expenditure incurred on voluntary retirement scheme was to enhance the productivity of business and to reduce losses expenditure therefore was allowable as deduction. The assessee placed reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X
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