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TMI Blog2014 (5) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... vious assessment year, there is no reason to interfere in the order of CIT(A) - assessee has actually written off the amounts – the decision in TRF Ltd. vs. CIT [2010 (2) TMI 211 - SUPREME COURT] followed - w.e.f. 1.4.1989 in order to obtain a deduction in relation to bad debts it is not necessary for the assessee to establish that the debt in fact has become irrecoverable - It is enough if the bad debt is written off and the bad debt is irrecoverable in the account of assessee – thus, the order of the CIT(A) upheld – Decided against Revenue. Deletion of provision for warranty expenses – Held that:- As decided in assessee’s own case, the decision in Wipro Ge Medical System Ltd. vs. DCIT [2009 (10) TMI 827 - ITAT BANGALORE] followed – the assessee has to submit present value of warranty expenses - It has to be properly ascertained and discounted on accrual basis - A proper calculation on this issue will be submitted to the AO who will examine the same and allow the claim - the Revenue has not pointed out any change in the facts and circumstances of the case – thus, the matter is remitted back to the AO for fresh adjudication – Decided in favour of Revenue. Disallowance u/s 14A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of ALP – Sale of material to AE - Held that:- CIT(A) was of the view that the transactions considered by the AO are not substantial as compared to the volume of the transactions - it is found that in most of the transactions, the appellant has earned higher sales price and in totality the appellant has gained higher prices – Revenue has not controverted the fact by placing any material on record – Decided against Revenue. Reduction of prior period adjustment – Computation of book profits u/s 115JB of the Act – Held that:- The decision in CIT vs. The Riddhi Siddhi Gluco Boils Ltd. [2014 (4) TMI 558 - GUJARAT HIGH COURT ] followed – the AO could not have varied the Profit and Loss Account of the company duly audited and prepared in terms of the provisions contained in the Companies Act – Decided against Revenue. Non-inclusion of Various expenses - Provision for doubtful debts, Provision for warranty expenses and interest expenses – Expenses warned for computation of book profits u/s 115JB of the Act - Held that:- CIT(A) rightly held that as regards the provision for doubtful debts and provision of warranty expenses, it should be treated as ascertained liability and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led to understand the facts and circumstances of the case. 2. The Learned Commissioner (Appeal) erred in confirming the non-allowance of claim of accrued interest Rs.38,33,185/- payable to APSEB as per order of the city civil court. 3. The Learned Commissioner (Appeal) erred in confirming the disallowance of Rs.3,62,160/- being administrative expenses u/s.14A of the Act, considering them incurred in relation to exempted dividend income. 4. The appellant prays for appropriate relief on the above grounds of appeals. 5. The appellant craves leave to add, alter, amend, substitute, or withdraw any of the above grounds of appeal as circumstances may justify. 2.1. Apart from the above grounds, the assessee has also raised an additional ground, which reads as under:- Additional ground of appeal Appellant craves leave to raise this additional ground of appeal before the Hon ble ITAT. This is a legal ground and therefore as per the decision of Hon ble Supreme Court in the case of National Thermal Power (229 ITR 383) it can be raised before the Hon ble ITAT. 1. The appellant prays that on the facts and circumstances of the case and in law fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel for the assessee submitted that this issue is decided in favour of assessee by the Hon ble Coordinate Bench in ITA No.1476/Ahd/2006 pertaining to AY 2002-03. 6.2. On the contrary, ld.Sr.DR supported the order of the ld.CIT(A). The ld.Sr.DR has relied on the decision of Hon ble Calcutta High Court in the case of Dhanuka Sons vs. CIT reported at (2011) 12 taxmann.com 227 (Cal.). 7. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the Hon ble Coordinate Bench in ITA No.1476/Ahd/2006(supra) vide para-16, it has been held that since the assessee had sufficient profits generated this year and it had mixed funds and no nexus is established by the AO as to whether investment was made out of interest bearing funds, disallowance of interest cannot be made. Similarly no disallowance out of administrative expenditure can be made as there is no direct nexus. As a result, this grounds is allowed. In this year also, the AO has not established the nexus. Moreover, the ld.counsel for the assessee has relied on the decision of the Hon ble Kerala High Court in the case of CIT vs. Ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through the orders of the authorities below. We find that the Hon ble Coordinate Bench in ITA No.2002/Ahd/2007 for AY 2003-04 vide para-56 has restored this issued back to the file of AO. The Hon ble Tribunal in para-56 has given the following direction:- 56. We have heard the parties and carefully perused the material on record. In our considered view the issue regarding liquidated damages requires a fresh look by the AO. He would allow the claim on actual basis. Wherever the other party has claimed liquidated damages against the assessee in the current year Asst.Year it should be allowed. The assessee would submit individual account and the AO will examine such accounts and take a decision as per law. This ground is allowed but for statistical purposes. 12.1. After considering the totality of the facts, we feel that a similar direction may also be issued in this case as well. Accordingly, the AO is directed to decide this issue afresh in the light of the direction issued in ITA No.2002/Ahd/2007 (supra). Thus, this ground of the Revenue is allowed but for statistical purposes. 13. Ground No.2 is against the deletion of the disallowance of Rs.26,08,000/-, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y observing as under:- 76. Ground No.2 relates to deletion of a sum of Rs.6,43,000/- is provisions for warranty expenses. The assessee debited a sum of Rs.25,70,000/- in the P L a/c. The AO disallowed warranty expenses for three months on proportionate basis as pertaining to the subsequent year. The ld.CIT(A) allowed the entire claim following the decision of ITAT, Bangalore in the case of Wipro Ge Medical System Ltd. vs. DCIT 81 TTJ 455. 79. We have heard the parties. The assessee has to submit present value of warranty expenses. It has to be properly ascertained and discounted on accrual basis. A proper calculation on this issue will be submitted to the AO who will examine the same and allow the claim as per decision of Hon.Supreme Court in Rotork Controls India (P) ltd. (supra) as above. This ground of Revenue is allowed but for statistical purposes. 15.2. Since the facts are identical in this case also and the Revenue has not pointed out any change in the facts and circumstances of the case, therefore taking a consistent view, we accordingly set aside the order of the ld.CIT(A) and restore this issue back to the file AO for fresh adjudication. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned. Hon. Supreme Court in the case of Munjal Sales Corporation vs. CIT (2008) 298 ITR 298 (SC) held where assessee had sufficient profits in the current year then interest free advances can be considered to be flowing from such profits. Hon ble Bombay High Court in CIT vs. Reliance Utilities Power Ltd. (2009) 313 ITR 340 (Bom) held that if there are fund available both interest free and interest bearing, then a presumption arise that investment were out of interest free funds generated or available with the assessee. If the interest free funds were sufficient to meet the investment no disallowance of interest paid on borrowed funds would be necessary. Once such presumption is established claim of interest was allowable. 15. There is another aspect of the matter. If the assessee has made investment in subsidiaries out of mixed funds and for commercial expediency then no interest out of payment made on borrowed funds can be disallowed as held in S.A.Builders Ltd. vs. CIT (2007) 288 ITR 1 (SC). Hon ble Punjab Haryana High Court in CIT vs. Hero Cycles Ltd. (2010) 323 ITR 518 (P H) held that no disallowance out of interest payment is permissible if AO does not e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arning exempted income cannot be allowed as deduction. Similarly, the AO identified that administrative expenditure which could have been incurred for handling the investment in shares and Mutual Fund. A part of such expenditure was considered attributable to investment made in sister concerns, the income therefrom was exempt under section 10(33). The assessee submitted that it has enough working capital and it has not increased its borrowings this year. Therefore, it cannot be said that investment in subsidiary was done during this year out of any borrowed capital made this year. Regarding administrative expenditure sought to be disallowed assessee submitted before the AO that there is no relationship of such expenditure with the investment activities. No specific staff has been appointed for this purpose. The AO, however, did not agree and disallowed proportionate interest by holding that assessee did not produce any evidence to show that interest free funds were alone used for making such investment in sister concerns. The assessee has not maintained separate account for making investment are out of mixed funds. There is no nexus between the investment and interest free funds. O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expansion of its existing unit. In the annual report, the installed capacity in respect of manufacturing of parts has not been reported. In annual report, it is stated that, The company has during the year expanded capacity by adding a new facility for manufacturing Glass Lined Parts Components. As on 31/03/2002 the company has no installed capacity in respect of manufacturing of parts. Therefore, the manufacturing in current year may be considered as 100% increase installed capacity in respect of manufacturing of parts. 19.1. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. Considering the submissions of the assessee, we find that the ld.CIT(A) has given a finding on fact that the appellant has started new line of production of manufacturing of parts which was not there earlier, therefore, there was no installed capacity as on 31.3.2002 in respect of manufacturing of parts, therefore there is 100% increase in installed capacity in respect of manufacturing of parts. Therefore, ld.CIT(A) was of the view that as the new facility of production has been established the appellant is clearly eligibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not justified in deleting the addition. On the contrary, ld.counsel for the assessee supported the order of the ld.CIT(A) and submitted that the order of the ld.CIT(A) is justified. 21.1. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the ld.CIT(A), after considering the explanation given by the ld.counsel for the assessee, has given a finding on fact that the transactions considered by the AO are not substantial as compared to the volume of the transactions. Further, it is found that in most of the transactions, the appellant has earned higher sales price and in totality the appellant has gained higher prices as can be seen from pages 197 to 199 of the paper-book. 21.2. The Revenue has not controverted this fact by placing any material on record, therefore, we do not find any infirmity in the order of the ld.CIT(A), the same is hereby upheld. Thus, this ground of Revenue s appeal is rejected. 22. Ground No.9 is against the direction of the ld.CIT(A) to the AO to allow reduction of Rs.1,11,223/- being prior period adjustment for the purpose of computation of book profit u/s.11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of CIT vs. ILPEA Paramount (P.) Ltd. reported at (2010) 192 Taxman 65 (Delhi). On the contrary, ld.counsel for the assessee supported the order of the ld.CIT(A) and relied on the decision of Hon ble Coordinate Bench (ITAT A Bench Ahmedabad) in ITA No.1999/Ahd/2008 for AY 2003-04 in the case of ACIT vs. Vodafone Essar Gujarat Ltd., dated 11/05/2012, decision of ITAT E Bench Mumbai in ITA No.3850/Mum/2010 for AY 2005-06 in the case of M/s.Essar Teleholdings Ltd. vs. DCIT dated 29/07/2011 and decision of ITAT F Bench Delhi in ITA No.4931/Del/2010 for AY 2007-08 in the case of Quippo Telecom Infrastructure Ltd. vs. ACIT, dated 18/02/2011. 23.1. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the ld.CIT(A) in para-14.2 of his order has given a finding that as regards the provision for doubtful debts of Rs..44,74,000/- and provision of warranty expenses are concerned, the same are treated as ascertained liability and therefore, no addition can be made to the book profit in respect of these amounts, accordingly, these additions are deleted. Similarly, in respect of disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same is hereby upheld. Thus, this ground of Revenue s appeal is dismissed. 24. Ground Nos.11 12 are general in nature which require no independent adjudication. 25. In the result, Revenue s appeal in ITA No.2923/Ahd/2008 for AY 2005-06 is partly allowed for statistical purposes. 26. Now, we take up the Revenue s appeal in ITA No.3280/Ahd/2010 for AY 2005-06, wherein Revenue has taken the following grounds:- 1. The ld.CIT(A) has erred in law and on facts in deleting the penalty of Rs.4,37,407/- levied by the A.O. u/s.271(1)(c) of the Act, on account of disallowance of Rs.8,33,185/- and Rs.3,62,160/- made by the A.O. in respect of interest paid to APESB and u/s.14A of the Act, respectively. 1.1. In doing so, the ld.CIT(A) has erred in not appreciating the fact that the assessee had furnished inaccurate particulars while claiming interest of rs.8,33,185/- on damages payable of Rs.69,43,209 to Andhra Pradesh State Electricity Board (APSEB) as per the decree dated 16-12-94 issued by the City Civil Court while the assessee had obtained stay from Hon ble Andhra Pradesh High Court against the said decree and hence the said decree was not in operation. 1. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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