9911796707
TMI Blog2014 (11) TMI 846X X X X Extracts X X X X X X X X Extracts X X X X ..... tated to be engaged in the business of manufacturing of packing materials and trading activities. It filed its return of income for AY 2000-01 on 30-11-2000 declaring total income of Rs.Nil. The case was selected for scrutiny and thereafter the assessment was framed u/s 143(3) vide order dated 28.3.2003 and the total income was determined at Rs. 2,91,82,710/-. Aggrieved by the order of AO, assessee preferred appeal before CIT(A). CIT(A) vide order dated 30.1.2004 granted partial relief to the Assessee. Aggrieved by the aforesaid order of CIT(A), both the Revenue and Assessee are in appeal before us. The grounds raised by the Assessee in ITA No 1113/AHD/2004 reads as under:- 1. That the learned Assessing officer has erred in law and facts by passing the assessment order. The assessment proceeding is bad in law and without jurisdiction and therefore the order passed by the learned AO should be quashed. 2. That the learned AO has erred in law and facts by disallowing Rs. 524421/-of Hire Charges paid to Blue Bends Finance Limited. It should be allowed in full. 3. That the learned AO has erred in law and facts by disallowing Rs. 1586540/- deferred revenue expenditure incurred. It sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essor disallowed the payment in A.Y. 1999-2000. Against the order of AO, Assessee had preferred appeal before Hon'ble Tribunal. Hon'ble Tribunal vide order dated 9th Oct 2006 (ITA No 3763/Ahd/2003) held as under: "3. We find the issue to be considered on the basis of the outcome of the Court decision, which is pending before the Gujarat High Court in Reference No Company Petition No.74 of 1998.We,therefore, set aside the issue back to the file of the A.O. to decide the matter on the basis of the outcome of the aforesaid Reference Petition. We direct accordingly." 8. Before us, both the parties have admitted that the facts in the year under appeal are identical to that of AY 1999-2000. We therefore, following the order of the co-ordinate Bench of Tribunal for A.Y. 1999-2000 remit the matter back to the file of the AO with similar directions. In result this ground of the Assessee is allowed for statistical purposes. The third ground of appeal relates to disallowing Rs. 15,86,540/- being deferred revenue expenditure. 9. During the course of assessment proceedings A.O. observed that Assessee had in the books of accounts claimed deferred revenue expenditure of Rs. 15,86,540/- but in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of claims, rebate and reversal pertaining to transactions entered by it during the earlier years. Assessee furnished the details and offered explanation. The AO was of the view that since the assessee was following mercantile system of accounting it should have made provision for these expenses in the accounts for the relevant years. He was therefore of the view that the expenditure pertained to the earlier years. AO further observed that the assessee has failed to establish as to how the amount of claim crystallized during this year and in view of the fact that no evidence was submitted to support its claims, AO held the expenditure to be pertaining to earlier years and hence Rs. 2,36,27,765/- was disallowed. 15. The assessee carried the matter in appeal before the CIT(A). CIT(A) upheld the order of AO by holding as under:- "8.3. After going through the facts of the case, findings of the A.O. and the submission of the A.R., it it found that the appellant's claim is that it could not realize sales proceeds hence it has claimed it as unrealized sales-claim in the year under appeal. This is a fresh claim this year. Since the sales relate to just one or two years before the year u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as in fact become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. In view of the aforesaid facts and respectfully following the decision of Apex Court cited hereinabove, we are of the view that since the assessee has written off the amount in its Profit and loss Account, the assessee is entitled to its deduction. Accordingly, we delete the addition made by the AO. In the result this ground of the Assessee is allowed. 20. The next ground of appeal is against the charging of correct interest after considering the prepaid taxes and interest u/s 234B, and 234C. Since charging of interest is consequential to the total income to be determined, the Assessing Officer is directed to recalculate the interest while giving effect to this order. 21. In the result, the appeal of the assessee is partly allowed. ITA No.1198/Ahd/2004 - A. Y. 2000-01 (Revenue's Appeal). The grounds raised by the Revenue reads as under:- 1. The ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 1,89,68,093/- holding it as deferred revenue expenditure against revenue expenditure claimed by the assessee. 2, The ld. CIT(A) has erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowing the claim of the assessee. He thus urged that the order of the AO be upheld. 26. On the other hand the Ld. A.R. submitted that the CIT(A) had deleted the addition made by the AO by relying on the decision of the Gujarat High Court in the case of Core HealthCare (supra). He further submitted that the decision of the Gujarat High Court has been approved by Hon'ble Apex Court and reported in 298 ITR 194 (SC). He thus urged that the order of the CIT(A) be upheld. 27. We have heard rival contentions and perused the material on record. The factual matrix of the case is that the assessee had treated the expenses as deferred revenue expenditure in the books of accounts but claimed as revenue expenditure while filing the return of income. CIT(A) deleted the addition made by the AO by relying on its decision in the preceding year, ITAT decision in the case of Vadilal Dairy International Ltd. and Gujarat High Court's decision in the case of Core Health Care (supra). The Ld. D.R. before us could not controvert the above facts nor has brought any binding contrary decision in its support. In view of these facts, we uphold the action of CIT(A) and accordingly dismiss this ground of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthority concerned that the borrowed money or part of it has been utilized for non-business purposes. Where the assessee has both, his own money as well as borrowed money, a presumption can arise that the money lent, even free of interest, came out of his own funds. In view of the above, the A.O. is not justified in disallowing the interest, without any specific findings. The A.O. is therefore directed to allow the claim of the interest paid in full as claimed. The disallowance and addition of Rs. 7,96,520/- on this point is deleted." 30. Aggrieved by the decision of the CIT(A), the Revenue is now in appeal before us. Before us, the Ld. D.R. submitted that the Assessee has failed to establish the purpose for which the advance was granted and how it related to business. He therefore urged that in such circumstances the order of the A.O. be upheld. On the other hand the Ld. A.R. submitted that it had ample funds at its disposal from which the advances were made. It was further submitted that the advances were given in earlier years and no disallowance has been made in earlier years. He thus relied on the order of CIT(A). 31. We have heard the rival contentions and perused the mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bearing fund has been utilized for the purpose of investments under consideration, there is no question of disallowance of interest and there is no effective new investment in shares and securities during the year, but there is net reduction in the investment to the tune of Rs. 2.77 crores and there is no such disallowance in earlier year. Since the A.O. could not prove that the relevant investments is out of interest bearing borrowed funds, I hold that the A.O. is not justified in estimating the interest expenses for earning dividend income. I therefore delete the addition made of Rs. 5,16,625/- on this count. This ground of appeal is allowed." 35. Aggrieved by the action of CIT(A), the Revenue is now in appeal before us. Before us, the Ld. D.R. submitted that the assessee has earned exempt income and as per the provisions of section 14A, the expenditure incurred has to be disallowed. He submitted that even the Hon'ble Bombay High Court in the case of Godrej Boyce vs. DCIT 328 ITR 71 (Bom) (supra) has held that though Rule 8D is applicable from AY 2008-09 but prior to AY 2008- 09, reasonable expenditure needs to be disallowed. He thus relied on the order of the A.O. On the other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. The expenses were in the nature of hire charges, legal charges, purchases etc. The A.O. also noted that since the assessee was following mercantile system of accounting and receipts and expenses are accounted on accrual basis, therefore the expenses claimed by the assessee were not allowable in the year and he accordingly disallowed the expenses of Rs. 1,01,26,985/-. 40. Aggrieved by the order of the A.O. assessee carried the matter in appeal before the CIT(A). After considering the submissions of the Assessee, CIT (A) deleted the addition by holding as under:- "(2)(iv) I have considered the submissions made by the Ld. Authorised Representative and have gone through the assessment order. The copy of computation of total income for the year makes it clear that the appellant company has itself disallowed prior period expenses of Rs. 1,01,26,985/- and by disallowing the amount again there will be a double addition. The A.O. is therefore directed to confirm the fact and delete impugned disallowance." 41. Being aggrieved by the above decision of CIT(A), the Revenue is now in appeal before us. 42. Before us, the Ld. D.R. relied on the order of lower authorities. The Ld. A.R. on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than the usual advances given to other staff and further that the assessee has not furnished any reasons for such huge advances and has made disallowance calculated at the rate of 18% on such advances. The A.O. has not brought out any cogent reason for the disallowance. Since on the similar fact, the disallowance of Rs. 7,96,520/- was deleted by my predecessor in the appellant's own case in the earlier assessment year agreeing with such finding, the disallowance of Rs. 7,50,420/- is directed to be deleted." 48. Aggrieved by the order of CIT(A), Revenue is now in appeal before us. 16. Before us, the Ld. D.R. submitted that the assessee has not justified its action of giving such huge amount of loan to its employees. In these circumstances, the amount advanced to the employees cannot be considered for being used for the purpose of business and therefore the A.O. had rightly disallowed the interest and accordingly the action of A.O. should be upheld. 49. The Ld. A.R. on the other hand submitted that the amount was advanced to employees in the normal course of business. Similar disallowances were made by the A.O. in the earlier assessment years in the past but the same were deleted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the finding of my predecessor and the facts and circumstances of the case in the earlier years and also considering the legal authority relied upon by the appellant, the disallowance/addition of Rs. 2,27,64,818/- is ordered to be deleted." 54. Aggrieved by the order of CIT(A), Revenue is now in appeal before us. 55. Before us, the ld. D.R. submitted that the interest expense has been rightly disallowed by the AO in view of the fact that the interest was on account of the addition made to the capitals assets and therefore the interest was of capital in nature and therefore urged that the order of the AO be upheld. The A.R. on the other hand reiterated the submissions made before AO and CIT(A) and further submitted that on identical facts, the CIT(A) in earlier years has allowed the deduction and therefore submitted that CIT(A) has rightly deleted the addition. The ld. A.R. also relied on the order of the Hon'ble Supreme Court in the case of DCIT vs. Core Health Care Ltd.(2008) 298 ITR 194 (SC). 56. We have heard the rival contentions and perused the material on record. We find that CIT(A) while deleting the addition has noted that similar additions were made by the AO in ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided that the capital is used for business purpose irrespective of what may be the result of using the capital which the assessee has borrowed. In view of the totality of the facts and respectfully following the decision of Hon'ble Apex Court in the case of Core Health Care (supra), we feel that the CIT(A) has rightly deleted the addition made by the AO. We accordingly uphold the action of the CIT(A) and thus dismiss this ground of appeal of Revenue. 58. In the result, the appeal of the Revenue is dismissed. Now we take up the appeal of the Assessee being ITA No.927/Ahd/2005 for AY 2001-02. The grounds raised by the assessee reads as under: 1. That the learned CIT(A) ought to have accepted the returned income and notes attached to the return of income and ought to have allowed our claims made in the return of income and order passed by the learned AO under section 144 of the Act is against the law and facts of the case and therefore the addition made therein should be deleted in full. 2. That the learned CIT(A) has erred in law and facts by not allowing the claim of, claims, rebate & reversal of claim of Rs. 8,04,87,441/-. The claim, rebate & reversal claim is correct, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enged the order passed u/s 144 of the Act. 61. Before us, the Ld AR submitted that the order passed by AO u/s 144 of the Act was bad in law and therefore the same be quashed. The Ld. DR on the other hand pointed to the findings of AO and submitted that due to the non-compliance to the notices by the Assessee, AO had rightly framed the assessment u/s 144. He thus supported the order of AO. 62. We have heard the rival submissions and perused the material on record. From the assessment order it is seen that AO has noted to have issued notices to Assessee on various occasions but the Assessee failed to comply with the same. Before us, Asseessee has not brought any material on record to prove the compliance of notices issued by AO. In view of these facts we are of the view that the AO had rightly passed order u/s 144 and we accordingly dismiss this ground of appeal. Ground No.2 relates to the confirming disallowance of Rs. 8,04,87,441/- on account of claims, rebate and reversal of claim. 63. During the course of assessment proceedings, the A.O. noticed that the assessee company has claimed Rs. 8,04,87,441/- as expenses on account of claims, rebate and reversal pertaining to transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and the addition of Rs. 8,04,87,441/- confirmed." 65. Aggrieved by the order of CIT(A), the assessee is now in appeal before us. 66. Before us the Ld. A.R. submitted that the details of the amounts reversed in the accounts are placed at page 40-70 of the paper book. It was submitted that the amount reversed apart from freight charges and liquidated damages mainly represents the discounts given to the parties in earlier years which were booked as sales in earlier years and offered to tax in the respective years. The Ld. A.R. further submitted that since the Assessee has written off the amount in its books of accounts, it has complied with the requirements of the Act and therefore the same should be allowed as deduction as bad debts. He further relied on the decision of Apex Court in the case of TRF Ltd. Vs CIT (2010) 323 ITR 397 (SC). 67. On the other hand the Ld. D.R. submitted that the sales relate to just one or two years old, the accounts of the parties from whom the amount has been written off are reputed parties and are running account, the Assessee does not seem to have made efforts for the recovery and the Assessee could not discharge its onus to prove the debts to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Act for interest expenses is that the amounts must have been borrowed and utilized for business purposes. Since the assessee has diverted interest bearing funds to its subsidiary company without charging interest, AO was of the view that the interest payments claimed by the assessee to the extent of fund diverted interest-free to subsidiary company cannot be treated as business expenses and the same was not deductible u/s. 36(1)(iii) of I.T. Act. Further since the assessee has deployed interest bearing fund for earning exempt income. In view of provisions of section 14A of I.T. Act, the interest expenses on investment in shares were also not deductible. The AO calculated interest of Rs. 2,25,73,649 (@ 18% on investment of Rs. 12,54,09,139/- in shares of group companies and specified persons u/s. 40A(2)(b) of the Act) and disallowed it out of total interest payment and added to the income. 70. Being aggrieved by the order of A.O. the assessee carried the matter in appeal before the CIT(A). CIT(A) upheld the order of the AO by holding as under: " 4 (iii) I have considered the submissions made by the Ld. A.R. and have gone through the assessment order passed by the A.O. It is seen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmissions and perused the material on record. Before us, ld. A.R. has submitted that the investments were made in earlier years and in the year the investments were made, Assessee was having interest free funds and no interest bearing funds have been used for making investments. Before us, the Assessee has not placed any material on record to demonstrate the availability of interest free funds or the cash flow statement in its support. We also find that the neither A.O nor CIT(A) has given any finding with respect to availability of interest free funds in the year of investments. In such circumstances, we feel that the issue needs to be re-examined at the end of A.O. We therefore remit the issue to the file of A.O to decide the issue de novo in the light of the contentions made by the Assessee and the decision relied by him and thereafter decide the issue as per law. Needless to state that A.O shall grant adequate opportunity of hearing to Assessee. Thus this ground is allowed for statistical purposes. The next ground of appeal relates to the confirming of disallowance of Rs. 39,50,678/- on account of sundry balance written off. 75. The A.O. found that the assessee has debited v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istical purposes. The next ground of appeal relates to disallowance of Rs. 6,00,000/-on account of legal and professional fees. 79. The A.O. observed that the assessee has debited expenses of Rs. 20,34,115/- under legal and professional fees for Unit-1 and Unit-II. On verification of account, the AO observed that Rs. 6,00,000/- has been debited on 8-10-2000 as paid by SIL to GE capital service for management fees. No further details or clarification was made available by the Assessee. The assessee had also advanced margin money of Rs. 1,39,50,376/- to the above party. The AO was of the view that the expenditure being of enduring benefits and capital in nature and therefore not allowable and accordingly disallowed the same and added to the income. Aggrieved by the above action of the A.O. assessee carried the matter in appeal before the CIT(A). 80. Before CIT(A) the Ld. A.R. submitted that the legal and professional fee expenses paid to GE capital Services as management fees and are for the purpose of business and revenue in nature and further that the accounts are audited, the expenses should not have disallowed it by treating it in the nature of capital expenditure. CIT(A) obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst the expenses of Rs. 24,61,450/- debited in immediately preceding. AO observed that the sales of the company stood decreased from Rs. 105.27 crores to Rs. 50.70 crores. He was of the view that prima facie, there appears no reason for increase in travelling expenses. Considering facts of the case and in absence of any detail of the expenses, the disallowance at 10% out of travelling expenses was made by AO and added to the income. Aggrieved by the above action of the A.O. the assessee carried the matter in appeal before the CIT(A). 89. CIT(A) upheld the order of the AO by holding as under:- "After considering the submission of the Ld. A.R. and facts on record, I find that the appellant has no proper explanation for the increase in travelling expenses. In fact no precise details of the expenses incurred have been furnished by the appellant and the business expediency of such expenses also remains to be proved. The contention made by the Ld. A.R. is also general in nature. I therefore do not find any justification to interfere with the disallowance made by the A.O. which is confirmed." 90. Before us, the Ld. A.R. contended that the expenses on travelling has been made during the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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