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TMI Blog2013 (12) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... N Power Finance and Infrastructure Development Corporation Ltd vs. JCIT [2005 (10) TMI 38 - MADRAS High Court] - Merely because the Reserve Bank of India has directed the assessee to provide for non-performing assets, that direction cannot override the mandatory provisions of the Income-tax Act contained in section 36(1)(viia) which stipulate for deduction not exceeding 5 per cent, of the total income only in respect of the provision for bad and doubtful debts which are predominately revenue in nature or trade related and not for provision for non-performing assets which are of predominately capital nature – Decided against assessee. Lease income – Held that:- Following assessee’s own case for A Y. 96-97 – The issue was restored for fresh decision. Consultation fee – Held that:- Report was prepared by M/s E & Y on the directions of Gujarat Gas Company Ltd and the report was also submitted to Gujarat Gas Company Ltd - Study carried by E & Y related to amalgamation and merger for efficient and effective functioning of Gujarat Gas Company Ltd and other group companies - Since the study was commissioned by the Gujarat Gas Company Ltd for efficient and effective functioning of Guj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fic expenditure have been incurred for the purpose of earning dividend out of administrative and other expenses. It is therefore submitted that the disallowance of Rs. 60,000/- be deleted. Without prejudice to the above, it is submitted that disallowance is very excessive and the same be reduced to minimum. 3. The learned CIT (Appeals) has erred in not Granting provision made for non performing assets of Rs. 1,32,12,521/- as par the directives of Reserve Sank of India. It is submitted that the above provision has been made as per the requirements of law and hence it is submitted that the same be granted." Revenue:- "1. The ld CIT(A) erred in law and on facts of the case in allowing the bad debts claim of Rs 12,52,424/- without appreciating the fact that the assessee, who is in business of leasing and hire/purchase, is not engaged in business of money lending or banking and therefore, is not eligible for write off of principal amount. 2. The ld. CIT(A) has erred in law and as well as on facts in deleting the disallowance of proportionate interest expenses amounting to Rs.22,7,840/- u/s. l4-A of the I T Act. 3. The ld. CIT(A) has erred in law and as we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was covered u/s. 36(2) whereby the assessee-company was to be treated as engaged in the business of banking and money lending with respect to the amount written off and claimed u/s. 36(1)(vii) r.w.s. 36(2). It was further observed by AO that in the books of account the amounts written off are Rs. 1,63,31,615/- not the entire amount of Rs. 2,71,64,237/-. 6. Before Ld. CIT(A) assessee s submission was that first the amounts were provided as provision for doubtful debts in the profit and loss account. Thereafter, the amount was taken to the respective party s account and the observation of the AO was therefore not correct that the parties account have not been written off. The reliance was also placed upon the decision of Supreme Court in the case of CIT vs. Nanital Bank 55 ITR 707 and the decision of Gujarat High Court decision in the case of CIT vs. Girish Bhagwat 256 ITR 772 to support its claim that the amounts written off in respect of loans given in the course of business were allowable to be claimed as bad debt and the same were admissible as and when the amounts were written off. 7. After taking into consideration the submission of the assessee, Ld. CIT(A) gave part relief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e items. However in respect of bad debt claim of Rs. 12,11,182/- in respect of Hanskamal Grover who has since expired and Rs, 41,2427- in respect of other parties whereby the transactions relate to hire purchase which is one of the main business of the appellant company, the claim of the appellant u/s. 36(1)(vii) r.w.s, 36(2) is justified and the claim is allowed. The AO is directed to allow bad debt claim in respect of these 2 parties, namely, Sr. No. 4 and 5 discussed at page 2 of the order. Accordingly, the disallowance of Rs. 2,64,93,888/- is reduced to Rs. 2,52,41,464/- and the appellant company gets relief of Rs. 12,52,424/- on this ground" 8. Aggrieved now both the parties are before us. Assessee is in appeal in respect of confirming of disallowance of Rs. 2,52,41,464/- for bad debt written off that were in the nature of bill discounting and inter-corporate deposits while revenue is in appeal in respect of bad debt allowed by Ld. CIT(A) of Rs. 12,52,424/- in respect of assessee s business of hire purchase. At the time of hearing learned counsel of the assessee at the outset submitted that issue in respect of claim of assessee of bad debt in respect of its business of hire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s =Total funds available =31993354x26438914 383120796 = 22,07,840/- 14. Ld. CIT(A) gave partial relief to the assessee by observing as under:- "4.1 In this respect, the appellant1 a representative Shri N B Shah in the first place has stated that the figure of Rs. 319,93 lacs relate to exempt income is not correct as taken by the AO It is submitted that investment in this respect are as under: Sr. No. Particulars Investment made Rupees (in lakhs) Income exempt Rupees Income offered Rupee 1 Investment in Government Securities (As required by RBI) 307.24 - 37,65,701 2 Investment in shares (net) 12.17 98,716 - 3 Investment in debentures 0.52 - 18,195 Total 319.93 98.716 37,84,496 It is therefore pleaded that tax free investments are only Rs. 12.17 lacs and other investment out of Rs.319.93 lacs are in government securities/debentures which are taxable. Further, my attention is drawn to investment of Rs. 98.716/- in the written submissions filed and it is pointed out that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,840/- made by AO u/s. 14A of the Act. At the time of hearing learned counsel of the assessee submitted that unless there was proof of actual expenditure incurred by the assessee to earn the exempt income, no disallowance can be made u/s. 14A of the Act. He therefore prayed that the disallowance confirmed by Ld. CIT(A) may also be deleted. Ld. DR on the other hand submitted that the issue may be sent back to the file of AO for fresh adjudication as Ld. CIT(A) has given relief to the assessee on the additional evidence produced by the assessee before him which was not before the AO and Ld. CIT(A) has not cared to obtain the remand report on this additional evidence. 16. After hearing both the parties and perusing the record, we find that Ld. CIT(A) has considered additional evidence in the form of details of assessee s own funds being available to him to invest to make investment to earn exempt income on which comments of AO were also not obtained by the Ld. CIT(A). Therefore we are inclined to accept the prayer of Ld. D.R. that issue deserves fresh adjudication at the end of AO after taking into consideration the additional evidence produced by assessee before Ld. CIT(A). 17. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e directions in respect of the same may be followed for this year also." Since it is consequential to the finding on this issue by the Tribunal for A.Y. 1996-97 no separate finding is required by us. This ground is accordingly disposed off. 23. Ground no. 4 5 in revenue s appeal is general and thus do not require any adjudication. 24. In the combined result, both the appeals are partly allowed for statistical purpose. Now coming to ITA No. 1095/Ahd/2006 25. Assessee has taken following grounds of appeal:- "1. The Order passed by CIT (Appeals) is bad in law and on facts and hence, it is submitted that the same be cancelled and be suitably modified. 2. The learned CIT (Appeals) has erred in confirming disallowance of bad debts of Rs. 2,71,07,143/-. The learned CIT (Appeals) has not granted bad debts in the nature of bill discounting and hire purchase transactions. On the basis of facts and circumstances of the case, it is submitted that the same is allowable expenditure as per the provisions of law and hence it is submitted that, the same be granted accordingly. 3. The learned CIT (Appeals) has erred in confirming disallowance of consultancy fees of Rs. 15, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment year 2001-02. Following the same, issue relating to bill discounting is restored back to the file of AO for fresh adjudication. This ground is allowed for statistical purpose. 30. Ground No. 3 relates to disallowance of sum of Rs. 15,77,550/- the consultation fee paid to Ernst Young which has been confirmed by Ld. CIT(A). 31. Brief facts of the care are that the AO noted that during the year under consideration the appellant company has made payment to M/s. Ernst Young towards the consultancy to the tune of Rs 15,77,550/-. On verification it was found that the study carried out by E Y was related to compete restructuring of the appellant company. The study was commissioned by Gujarat Gas Company Ltd. and the report was also submitted to Gujarat Gas Company Limited only. Several other issues were also noted with regard to the study carried out by E Y. As a result a show cause notice was issued on 21 2 2005. to which the assessee company has submitted its reply to the AO. From the submission of the assessee, the AO noted that it is a finding of fact that the report was submitted to Gujarat Gas Company Limited by E Y. Further, the study was commissioned by GGCL and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical having impact of enduring nature. The AO also inferred that although no action has been taken on the suggestions of consultant, it cannot be ruled out that the possibility of any action in future. Therefore, such an expenditure qualify as capital expenditure and it cannot be allowed u/s, 37 of the Act. In this regard, reliance was placed on the fallowing decisions: (i) Saurashtra Cement and Chemical Ind. Ltd. 196 ITR 237 (Guj) (ii) Bengal and Assam Investors Ltd. v CIT 142 ITR 156 (Kol) (iii) Jayashree Tea and Industries Ltd v CIT 80 Taxman 169 (Kol) 33. In view of the above, the AO disallowed payment made to E Y of Rs. 15,77,550/- as consultancy charges and added the same to the total income of the assessee. 34. During appellate proceeding, before Ld. CIT(A) assessee s submission on this issue was that during the year under review because of special business activities of finance company, M/s. Ernst Young, Consultants were appointed to look into the possibilities of the restructuring of the company considering various aspects. This study was carried out considering the nature of business of the company and was purely in the interest of the company. The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and effective functioning of Gujarat Gas Company Ltd only, it cannot be said that this expenditure was incurred fully and exclusively for carrying on business of the assessee. Therefore we are not inclined to interfere with the order passed by Ld. CIT(A) on this issue and the same is hereby upheld. This ground of assessee is dismissed. 38. Ground no. 4 relates to allowance of lease equalization of Rs. 3,66,02,456/- Ld. CIT(A) has dealt this ground as under:- "6.1 The learned counsel submitted that vide letter dated 24.02.2005 the AO was requested to grant an amount of lease equalization as deduction. However, the AO has not granted the same. The above deduction was asked on the basis of judgment of Hon ble Hyderabad Tribunal in the case of JCIT v. Pact Securities Financial Ltd. 86 ITD 115 (Hyd). 6.2 1 find that this issue has not been discussed by the AO in the body of the assessment order. The appellant had not claimed any deduction in the return of income or in computation of income. Therefore, this is not emanating from the order or from the statement of income. Accordingly, this ground is infructuous and dismissed. However, if there is any error on facts on recor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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