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TMI Blog2011 (10) TMI 656X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. CIT(A) dated 11.11.2010. The following grounds have been raised in this appeal: 1. The order of the learned CIT (A) is contrary to law and facts of the case. 2.1. The learned CIT(A) has erred in directing the AO to allow the royalty expenses of ₹ 79,24,250/- as revenue expenditure. 2.2 Having regard to the Hon'ble Supreme Court decision in the case of M/s Jonas Woodhead Sons (India) Ltd Vs CIT (224 ITR 342) the CIT(A) ought to have confirmed the action of the Assessing Officer. 3.1 The learned CIT(A) has erred in directing the AO to restrict the disallowance u/s 14A to ₹ 4,23,548/- as against ₹ 6,23,548/- disallowed by the AO under Rule 8D. 3.2 The learned CIT(A) relying on the decision of the Mumbai High Court in the case of Mis Godrej Boyce Mfg Co held that Rule 8D was applicable from A.Y 2008-09 only. 3.3 It is submitted that the decision of the Hon'ble High Court relied upon by the CIT(A) has not become final and is being appealed against. 4.1 The learned CIT(A) has erred in directing the AO to delete the disallowance of ₹ 3,38,948/- being provision to exgratia. 4.2 The learned CIT(A) failed to appreciate that the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Consequently, Ground Nos.2.1 and 2.2 of this appeal stand dismissed. 6. The next issue of this appeal is regarding disallowance u/s 14A. The Assessing Officer has disallowed ₹ 6,23,548/- as against which the ld. CIT(A) has restricted it to ₹ 4,23,548/-. While doing os, the ld. CIT(A) has followed the decision of Hon'ble Bombay High Court rendered in the case of Godrej Boyce Mfg Co, for holding that Rule 8D was applicable from assessment year 2008-09 onwards and not before. The only reason given to dispute this deletion is that the Hon'ble Bombay High Court s decision has not yet become final. But in our opinion, this is not a valid reason for challenging the finding of the ld. CIT(A) who has followed a valid and existing precedent which has not been overruled. There is no contrary decision of the Jurisdictional High Court on this issue. The assessee-company had given the working of expenses amounting to ₹ 4,08,548/- being the interest expenditure on borrowed funds to earn the exempt income and offered a sum of ₹ 15,000/- towards indirect cost totaling to ₹ 4,23,548/- for earning the exempt dividend income. The Assessing Officer has accepted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under: Disallowance u/s 14A: 1. The learned CIT 'A' ought to have held that the assessing officer has not established that the provisions of Sec.14A(2) are attracted on the facts of the case. 2. In para 7 of the Appellate order relating to disallowance of expenses u/s.14A incurred for earning exempt income, the learned CIT 'A' has restricted the disallowance to ₹ 4,23,548/-. He ought to have fixed the figure at ₹ 3,73,548/- as under: Disallowance towards Direct Cost as accepted by CIT (A) Rs.4,08,548 Disallowance towards Indirect cost as accepted by CIT (A) Rs.15,000 Total disallowance as sustained by CIT (A) Rs.4,23,548 Less: Amount already disallowed by the assessee in the income tax adjustment statement filed along with the return of income Rs.5,000 Net disallowance to be sustained by CIT (A) Rs.3,73,548 It is therefore, prayed that the Hon'ble Tribunal may be pleased to fix the amount to be disallowed at ₹ 3,73,548/- again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he earlier years 4.2 The learned CIT(A) failed to appreciate that the assessee has not made such a claim either in its return of income or in a revised return. 4.3 Having regard to the decisions of the Hon'ble Supreme Court in the case of Goetze (India) Ltd. v. CIT (284 ITR 323) and the Hon'ble Tribunal, Mumbai Bench in the case of Jay Bharat Co-op Housing Society (125 ITO 90), the CIT(A) ought to have confirmed the A.O's actions. 5.1 The learned CIT(A) has erred in allowing the assessee appeal against the Assessing Officer rejecting the assessee claim to allow the sum of ₹ 15,02,237 being provision for derivative contract which was added back by the assessee in the R/I. 5.2 The ld. CIT(A) failed to appreciate that loss on market to market basis is a notional loss which would be contingent in nature and cannot be allowed to be set off against taxable income. 5.4 Having regard to the decisions of the Hon'ble Supreme Court in the case of Goetze (India) Ltd. v. CIT (284 ITR 323) and the Hon'ble Tribunal, Mumbai Bench in the case of Jay Bharat Co-op Housing Society (125 ITO 90), the CIT(A) ought to have confirmed the A.O's actions. 6 For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital in nature. The assessee furnished the details of this amount as under: a) Government of India Loan 2007 Rs.5,73,030 b) 7.48% Government of India Loan 2012 Rs.46,305 c) 12% Government of India Loan 2008 Rs.800 d) National Savings Certificates Rs.400 e) Gujarat State Financial Corporation Ltd Rs.9,36,000 19. The case of the assessee is that items (a) to (d) mentioned above are Government Securities held by the assessee to satisfy the statutory liquidity ratio regulations for Non-Banking Financial Companies prescribed by Reserve Bank of India and hence, form part of its stock-in-trade. It was contended that the stocks of Gujarat State Financial Corporation are not held as capital asset since they have to be acquired to obtain loans from the State Financial Corporation for its trade purposes. It was argued that these amounts have been shown as investments in the Balance Sheet, hence, their real nature is stockin- trade and it would not change. The ld. CIT(A) has rest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee is entitled to claim impugned deduction in the relevant year itself. In so far as the decision of Hon'ble Supreme Court in the case of Goetz(India) Ltd is concerned, that has a binding on the Assessing Officer but the Tribunal has not been disabled to allow a legal claim to the assessee. Rather, it is our bounden duty to give deserving relief to the assessee. It was found that certain items of income which have already been taxed in the earlier years cannot be taxed again which is against the fundamental principles on which fiscal laws operate. A contrary view has to be treated illegal and illogical. Therefore, the impugned direction given by the ld. CIT(A) to the Assessing Officer to verify the assessee s claim made in the letter dated 21.2.2009 that the same income which has already been assessed in earlier assessment year(s) and if so, he has to reduce the total income by the amount already assessed, cannot be treated as incorrect finding. We, therefore, confirm the same and dismiss Ground Nos.4.1 to 4.3 of the appeal. 24. The next issue raised vide Ground Nos.5.1 to 5.4 is in relation to a sum of ₹ 15,02,237/- being provision for derivative contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous year relevant to subsequent assessment year. In order to ensure that it is able to repay the foreign lenders in the foreign currency on their respective due dates of repayments, the assessee had entered into forward contracts as a safeguard against foreign currency fluctuations. It is the difference between the forward contract rate and the exchange rate on the date of transaction which was claimed as deduction in that very year. The forward contract is an agreement between two parties, requiring the delivery at some specified future date of a specified amount of foreign currency by one of the parties, against payment in domestic currency to the other party, at the price agreed upon in the contract. The rate of exchange applicable to the forward contract is called the forward exchange rate and the market for forward transactions is known as the forward market. Thus, in case of a forward contract, assessee enters into a legally binding, enforceable contract for purchase of foreign currency on a future date at the predetermined rates. The date and the rate of purchase of the foreign currency are decided at the time of entering into contract. The difference between the forward ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s should take the initiative in guiding a tax payer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the department, for, it would inspire confidence in him that he may be sure of getting a square deal from the department. Although, therefore, the responsibility for claiming refunds and relief rest with the assesses on whom it is imposed by law, officers should: (a) draw their attention to any refunds or relief to which they appear to be clearly entitled but which they have omitted to claim for some reason or other; (b) freely advise them when approached by them as to their rights and liabilities and as to the procedure to be adopted. 27. Accordingly, we confirm the impugned finding of the ld. CIT(A) and dismiss Ground Nos. 5.1 to 5.4 of Revenue s appeal. Our above observations results in dismissal of Revenue s appeal. 28. The cross objection of the assessee is simply in support of the ld. CIT(A) s order but the disallowance u/s 14A has to be reworked as per the grounds reproduced above. We, therefore, direct the Assessing Officer to consider this working of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t; and as such it is an admissible deduction u/s.37 of the Income tax Act incurred on grounds of commercial expediency. vi) The learned CIT 'A' has failed to appreciate that the order of the ITAT 'C' Bench, Chennai, in 1.T.A.No.236/Mds/2009 dated 16.07.09 for the assessment year 05-06, which has been followed by him, has not become final and an appeal against that order has been admitted by the Chennai High Court in Tax Case NO.1265/2009 on 02.02.10. B. Disallowance of bad debts written off ₹ 2,12,67,000/- i) The learned CIT'A' erred in confirming the disallowance of bad debts to the extent of ₹ 2,12,67,000/- made by the assessing officer. ii) The learned CIT 'A' has erred in holding that these bad debts which have been actually written off in the books maintained by the appellant to comply with the provisions of Income tax Act, are hit by the provisions of Explanation to 36(1)(vii) introduced by the Finance Act 2001. iii) The CIT 'A' has failed to appreciate that the impugned bad debts have been actually written off with corresponding reduction in asset accounts and they are not provisions as erroneously understood ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case 240 ITR 355 (SC) at p.367. viii) The learned CIT 'A' has not properly appreciated the import of write off of the debts in the Profit and Loss account. The assessing officer has failed to appreciate that full details of bad debts have been furnished in the assessment proceedings; that they have been written off after proper assessment of each account. ix) The learned CIT 'A' should have been pleased to follow the jurisdictional Appellate Tribunal's orders in the appellant's case itself in its order dated 21.04.2006 for assessment years 1997- 1998 (I.T.ANo.13/Mds/2001), 1998-1999 (I.T.ANo.72/ Mds/2002), 1999-2000 (I.T.ANo.522/Mds/2004), 1999-2000(1. T.A No. 522/Mds/2004) 2002-2003(1. T.A No. 987 /Mds/2006), where similar bad debts claims have been allowed. x) Similar disallowance made by the Assessing officer in the immediate preceding Assessment Year 2006-2007 was deleted by CIT(A) and the Hon'ble Income Tax Appellate Tribunal In its order In I.T.ANo.726/Mds/2010 dated 16.12.2010 has confirmed the order of CIT(A) deleting the addition. III. COMPUTATION U/S 115JB OF THE INCOMETAX ACT, 1961 (A) Amount transferred to Statutory Reserv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transferred to Reserve Fund in computing income u/s.115JB of the Income Tax Act, is against law and facts of the case. II. Computation of Income under Regular Provisions: D. Amount transferred To Statutory Reserve ₹ 80,79,62,329/- j)The learned CIT A has erred in confirming the disallowance of the amount of ₹ 80,79,62,329/- transferred to Reserve Fund u/s 45 IC of the RBI Act by holding that it is an application of income. ii) The learned CIT A has failed to appreciate that as per Section 45 IC of RBI Act 20% of the net profits of the company cannot form part of the real income of the company; that the company loses control over this part of the income from the beginning; and that a part of the corpus of the right of the company to have the entire income is sliced away at the threshold itself. iii) The learned CIT A failed to appreciate that there is no diversion or application of income since the transfer is not through any obligation created by the company out of its own volition or gratuitously. iv) The learned CIT A failed to appreciate that in view of the provisions of sec 45 Q of the RBI Act, the Company loses its title over 20% of the inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ately to comply with the provisions of the Companies Act; and that the entries in those books cannot be imported in computing the Income under Income Tax Act, especially as the assessing officer has proceeded to compute the total income from the business income of ₹ 3,23,48,89,560/- admitted by the assessee, which income has been arrived at from books maintained in compliance with the provisions of Income Tax Act. vi) The learned CIT 'A' failed to appreciate that the Appellate Tribunal has held that the profits for the purpose of Income tax Act has to be determined on the basis of accounts prepared for the purpose of Income tax vide Para 19 in page 18 of its common appellate order dated 21.04.06 in the appeals for the assessment years 1995-96 to 2001-02 in the appellant's case itself in I.T.A No.493/Mds/2002 for Assessment Year 1996- 1997, I.T.A No. 417/Mds/2001 for Assessment Year 1997- 1998, I.T.A No. 1523/Mds/2004 for Assessment Year 1998- 1999, I.T.A No. 436/Mds/2004 for Assessment Year 1999- 2000 and in I.T.ANo. 1160/Mds/2005 for Assessment Year 2001-2002 and this finding has not been challenged by the Department in the Appeals filed in the High Court agai ..... 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