9911796707
TMI Blog2016 (2) TMI 230X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 instead of 31.1.2014 and the appeals were actually filed within the stipulated time. Since it is a typographical mistake, the assessee prayed for admission of the appeals. After going through the records, we find that it is a typographical mistake committed by the assessee's counsel, and therefore, we condone the delay and admit the appeals. I.T.A.No.594/Mds/2014[Assessee's appeal] and I.T.A.No. 702/Mds/ 2014 [Revenue's appeal] - A.Y 2009-10 3. In assessee's appeal I.T.A.No. 594/Mds/2014, the first issue is with regard to disallowance u/s 14A r.w. Rule 8D. 4. The facts of this issue are that the assessee itself has disallowed the expenditure u/s 14A of the Act of Rs. 31,25,933/-. The assessee has shown in its accounts dividend income of Rs. 3,92,79,128/- and interest debited was Rs. 11.23 crores. The assessee has huge investment portfolio to the extent of Rs. 80.74 crores. Not satisfied with the amount of expenditure disclosed u/s 14A and not satisfied with the explanation given during the course of assessment proceedings, the Assessing Officer proceeded to work out the disallowance u/s 14A r.w. Rule 8D and by relying on the decisions in the cases of CIT vs Reliance Utilities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is in appeal before us. 5. We have heard both the parties and perused the material available on record. In our opinion, the decision of the Special Bench Delhi in the case of Cheminvest vs ITO (supra) is no more good law as this decision is reversed by the Delhi High Court in the case of Cheminvest Ltd vs CIT in I.T.A.No. 749/2014 dated 2.9.2015 wherein held that no disallowance u/s 14A can be made in a year in which no exempt income has been earned or received by the assessee. Sec. 14A also does not apply to shares bought for strategic purposes. Being so, in our opinion, applicability of decision of Special Bench is not proper. Further, the ld. AR relied on the judgment of the Cochin Bench of the Tribunal in the case of M/s Geojit Investment Services Ltd vs ACIT, I.T.A.No.261/Coch/2014 dated 28.8.2014 and also the decision of the Chennai Bench in the case of ACIT vs M/s Best & Crompton Engineering Ltd, I.T.A.No.1603/Mds/2012, dated 16.7.2013, for the proposition that the Assessing Officer shall satisfy himself about the applicability of 14A r.w. Rule 8D. In our opinion, the grievance of the assessee is justified and it requires reexamination at the end of the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken in the assessment order was affirmed against which the assessee is in further appeal before this Tribunal. The totality of facts clearly indicates, as claimed by the assessee that no borrowed funds were utilized for earning the exempt income by the assessee and further the dividend were directly credited in the bank account of the assessee and no expenditure was claimed. What it may be, we find that the assessee only received Rs. 1,82,362/- as dividend income, therefore, there is no question of disallowance of Rs. 14,58.412/- by invoking section 14A r.w. Rule 8D under the facts available on record. It was also explained by the ld. counsel for the assessee that on identical fact in earlier years, no disallowance was made. In the present assessment year also, no borrowed funds were invested by the assessee for making investment in shares or for earning dividend income . At best, if any disallowance could be made that can be restricted to Rs. 1,485/- which were claimed as demat charges. Disallowance u/s 14A r.w. Rule 8D cannot exceed the exempt income. In view of this fact, we find merit in the claim of the assessee. The appeal of the assessee is therefore, allowed." 5.1 Follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Assessing Officer has put this situation succinctly saying that 'what is applicable to goose should also apply to gander' and disallowed the claim of the assessee. The CIT(A) confirmed the same. 10. The ld.AR of the assessee submitted that expenses are meticulously estimated which has to be incurred upto the stage of completion of the contract and this was based on consistent accounting policy and the same was claimed as expenditure. According to him, as per Accounting Standard (AS)-7 - accounting of construction contracts, as applicable at the relevant time, the revenue is recognized only when the project is complete or substantially complete. Till that date, all costs incurred and accumulated as part of work-in-progress and on account payments received are shown as current liabilities. In the year, when the project is complete or substantially complete (i) revenue on the project is recognized included balance billing left (ii) all costs taken as part of work-in-progress are debited to the profit and loss account, and (iii) additionally, anticipated costs till completion are also debited to the Profit & Loss Account, to determine the profit/loss on the particular work. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act, it is mandatory that the assessee follows the accounting standards that may be notified by the Central Government. AS-1 is mandatory which has been followed by the assessee. 11. On the other hand, the ld. Departmental Representative submitted that what is applicable to retention money receivable, the same is applicable to withholding of payment. According to the ld. DR, the expenses were yet to be incurred, the liability thereof could not be said to have accrued so as to be allowed under the mercantile system of accounting as it was not a liability in praesenti but the anticipated expenses which cannot be determined with certainty cannot be allowed. He relied on the orders of the lower authorities. 12. We have heard both the parties and perused the material on record. Generally, the expenditure which is actually incurred or is incurred in a relevant year would be allowed as deduction while computing the income from business. Such a liability has to be in praesenti. However, at the same time, it relates to the works undertaken by the assessee, completed contract method of accounting is followed which is consistent with the Accounting Standards and these Accounting Stand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f this kind. But, obviously, judging from the references that come up to us every now and then, the Department appears to delight in raising points of this character which do not affect the taxability of the assessee or the tax that the Department is likely to collect from him whether in one year or the other." 12.1 The aforesaid observation of the Bombay High Court was reiterated by the Delhi High Court in the case of CIT vs Shri Ram Pistos and Rings Ltd, 220 CTR 404, as under: "Finally, we may only mention what has been articulated by the Bombay High Court in CIT v. Nagri Mills Co. Ltd. [1958] 33 ITR 681 (Bom) as follows : . . . In the reference that is before us there is no doubt that the assessee had incurred an expenditure. The only dispute is regarding the date on which the liability had crystallized. It appears that there was no change in the rate of tax for the assessment year 1983-84 with which we are concerned. The question, therefore, is only with regard to the year of deduction and it is a pity that all of us have to expand so much time and energy only to determine the year of taxability of the amount." 12.2 Further, in our opinion, the provision for accrued liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction. Same view was taken by the Delhi High Court in the case of CIT vs Whirlpool of India Ltd, 242 CTR 245, wherein held that the assessee consistently making provision for warranty on the basis of actuarial valuation in respect of machines sold during the year could not be precluded from revising this provision after taking into consideration that warranty period of the goods sold under warranty was exceeding and provision already provided in a particular year is falling short of the expected claim that may be received. Such a provision is based on scientific study and actuarial basis and to be allowed as a business expenditure. Hence, in our opinion, the provision for payment made by the assessee towards sub-contract is allowable expenditure as the assessee recognized the revenue from the said contract as income in the assessment year under consideration. Further, we make it clear that the assessee cannot claim the same expenditure on actual payment basis, otherwise it amounts to double deduction - one on the basis of accrual and another on the basis of actual payment. Hence, we direct the Assessing Officer to allow this retention money payment only on accrual basis and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sec.40A(2)(b) stating that the assessee would not have paid so much amount as licence fee to outsider for such logo and trademark. Accordingly, the claim of deduction of Rs. 2 crores being the amount relatable to the trade licence fee for use of trade name and logo as per the agreement between the assessee company and M/s. Samruddhi Holdings was disallowed by the Assessing Officer within the scope of Section 37(1) of the Act in the computation of taxable total income holding that it is a tailor-made arrangement. Accordingly, he made the disallowance. On appeal, the ld. CIT(A) has observed as under: 6.2 I have gone through the facts and circumstances of the case and submissions made by the Id. AR . From the facts of the case, it is noticed that M/s.Samruddhi Holdings, a partnership firm floated by four individuals on 31.5.1997 has created the appellant company on 11.7.1997. Even though the time gap is only 41 days and the Samruddhi Holdings has not earned any image which should earn licence fee, but the fact remains that the logo and the brand name of Triple C is the brain child of the partners of the Samruddhi Holdings. It is fully supported by LOU between the company and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue is in appeal before us. 18. We have heard both the parties and perused the material available on record. This issue came up for consideration before the Tribunal in assessee's own case for assessment year 2006-07 in I.T.A.No. 2146/Mds/2010 and the Tribunal vide order dated 24.5.2011 decided the issue in favour of the assessee by observing that the payment made to M/s Samruddhi Holdings is an allowable expenditure u/s 37 of the Act and thereby annulled the revisional order of the CIT dated 27.10.2010 passed u/s 263 of the Act. Being so, in our opinion, the expenditure incurred by the assessee is a revenue expenditure and to be allowed accordingly. This ground is dismissed. 19. The next issue in Revenue's appeal is with regard to deleting the disallowance of additional depreciation made to the extent of Rs. 56,00,907/-. 20. The facts of this issue are that the Assessing Officer made disallowance of additional depreciation on plant and machinery to the extent of Rs. 56,00,907/- after adjusting such additional depreciation claimed for A.Ys 07-08 and 08-09 which will have a cascading effect on the written down value of the present assessment year (75,19,652 - 19,18,675) . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vity of civil construction and it is not in the field of manufacturing. However, the CIT(A) considering the ready-mix concrete plant as a separate undertaking which is engaged in the manufacture of article or thing, granted additional depreciation u/s 32(1)(ii) of the Act. In our opinion, the findings of the CIT(A) is justified and the contention of the Revenue is not sustainable in view of the judgment of the jurisdictional High Court in the case of CIT vs VTM Ltd, 319 ITR 336, wherein held that the assessee which was a manufacturer of textile goods when set up a windmill was entitled to additional depreciation. Same view was taken by the co-ordinate Bench in the case of Sheela Clinic in I.T.A.No. 481/Mds/2011 dated 30.5.2011, by observing that generation of electricity is an independent activity though originally the assessee is engaged in the business of running a hospital. Considering the facts and circumstances of the present case, we are of the opinion that the CIT(A) has rightly allowed the claim of the assessee. This ground of the Revenue is dismissed. 22. The next ground in Revenue's appeal is with regard to deleting the disallowance of Rs. 1,25,23,010/- on purchase of au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bringing out a business plan. The Assessing Officer also observed that another amount of Rs. 25 lakhs was paid to M/s Unit Trust of India venture funds Management Company Pvt. Ltd for raising of share capital. He applied the ratio of Supreme Court in the case of Brooke Bond India Ltd, 225 ITR 798, wherein it was held that expenditure incurred in issue of share capital is capital expenditure. On appeal before the CIT(A), the CIT(A) observed that these expenditure give benefit to the assessee for longer duration of time. Being so, the ratio of judgment of Supreme Court in the case of Madras Industrial Investment Corporation Ltd vs CIT, 225 ITR 802 has to be applied. Otherwise, allowing the expenditure in one year might give a very distorted picture of the profits of the assessee-company for a particular assessment year and the benefit of the expenditure incurred by the assessee is over a period of three years which is to be apportioned. He directed accordingly against which the Revenue is in appeal before us. 28. We have heard both the parties and perused the material available on record. In our opinion, the reliance placed by the CIT(A) in the case of Madras Industrial Investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2% of the dividend income as expenditure for earning the exempted income by the assessee. This ground is partly allowed. 33. The next issue is with regard to disallowance of Rs. 1,50,200/- u/s 35D(2)(c)(iii) of the Act. This ground was not pressed at the time of hearing hence, the same is dismissed as not pressed. 34. The next issue is with regard to disallowance of Rs. 6,48,33,901/- being retention money payable while computing the income of the assessee. 35. We have discussed similar issue elaborately in assessee's appeal I.T.A.No.594/Mds/2014 for assessment year 2009-10. In view of our finding in the former part of this order and for the reasons stated therein, we remit this issue to the file of the Assessing Officer for deciding the same as per the direction given in the assessee's appeal for assessment year 2009-10. 36. In the result, the appeal of the assessee I.T.A.No.592/Mds/2014 for assessment year 2007-08 is partly allowed for statistical purposes. 37. Now coming to Revenue's appeal I.T.A.No. 875/Mds/2014 for assessment year 2007-08, the first ground is with regard to deletion of addition of Rs. 2,47,79,060/- u/s 37(1) of the Act towards payment of trade licence fee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Revenue's appeal I.T.A.No. 702/Mds/2014 for assessment years 2009-10 and 2007-08 by following the order of the Tribunal in assessee's own case in I.T.A.No.2146/Mds/2010 dated 24.5.2011, in favour of the assessee. We, therefore, dismiss the ground raised by the Revenue. 51. The next issue is with regard to restricting the disallowance u/s 14A r.w Rule 8D to only 3rd limb of Rule 8D(2) of the Act to the extent of Rs. 70,57,089/- 52. In assessee's appeals I.T.A.No.594/Mds/2014 for assessment year 2009-10 and I.T.A.No.593/Mds/2014 for assessment year 2008-09, we have remitted this issue to the file of the Assessing Officer to decide afresh in the light of the decision of the Mumbai Bench of the Tribunal in the case of M/s Daga Global Chemicals Pvt. Ltd in I.T.A.No.5592/Mum/2012 dated 1.1.2015. Therefore, this ground does not require specific adjudication. 53. The next issue is with regard to deleting additional depreciation of Rs. 55,91,308/- u/s 32(1) of the Act. 54. We have heard both the parties and perused the material available on record. This issue is covered by our order in Revenue's appeal I.T.A.No.702/Mds/2014 for assessment year 2009-10 given in the earlier part of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
