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TMI Blog2016 (5) TMI 1259X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing u/s. 14A a part of interest and expenses allegedly as relatable to earning of exempt dividend income by applying Rule 8D on the facts and in the circumstances of the case. 2. The Commissioner of Income Tax (appeals) erred in upholding the action of the Assessing Officer in making addition of interest income as per CASS on the facts and in the circumstances of the case. 3. The Commissioner of Income Tax (appeals) erred in upholding the action of the Assessing Officer in making addition of expenses including interest disallowed u/s 14A read with Rule 8D in computing book profit u/s. 115JB of the Act on the fats and in the circumstances of the case. 4. On the facts and in the circumstances of the case the authorities below erred in not reducing the lower of loss brought forward or unabsorbed depreciation as per books of account in computing book profit u/s. 115JB of the Act." 3. First issue raised in this appeal of assessee is as regards that Ld. CIT(A) erred in confirming the action of Assessing Officer by sustaining the disallowance u/s 14A of the Act r.w.s. Rule 8D of the IT Rules, 1962. 3.1 Facts in brief are that assessee is a Limited Company engaged in busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15) We have heard the rival submissions and perused the orders of authorities below. Sec. 14A provides that any expenditure relating to earning of income which is not includible in the total income; cannot be allowed in computing the total income. Language of Sec. 14A indicates that an expenditure incurred in relation to earning of exempt income is not permissible and therefore the nexus of the expenditure should be established with the tax free income. Where an assessee incurs composite expenditure which produces income which is partly chargeable and partly non chargeable then in working out the disallowable expenditure u/s. 14A; apportionment should be made by applying income criterion. In our considered pinion apportionment of expenditure on income criteria would be reasonable and appropriate having regard to the language used in Sec. 14A. Moreover we find that the same AO in the assessment of Brabourne Investments Ltd applied the income criteria for quantifying interest disallowable u/s 14A of the Act. In the circumstances, we do not find any reasons for AO to adopt entirely different formula for quantifying the amount disallowable u/s 14A of the Act. For this reasons therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perusing the material viable on record, we find that the same issue was considered by the ITAT, Kolkata Bench in the assessee's own case for AY 2002-03 in ITA No. 318/K/2006 dated 10th August, 2007. We also find that since the Ld. CIT(A) has given relief to the assessee by following the said decision of the ITAT, Kolkata Bench cited supra, we find no need to interfere with the same and, therefore, the same is hereby upheld. This ground of appeal of the revenue is, therefore, dismissed." Taking a consistent view in assessee's own case (supra) we accordingly restore this issue to the file of AO to work out the disallowance in proportionate to the gross income of assessee in accordance with the law. This ground of assessee's appeal is allowed for statistical purpose. 7. Second issue in this appeal of assessee is as regards that Ld. CIT(A) erred in confirming the action of AO in sustaining the addition of interest income as per CASS. During the course of assessment proceeding, AO observed that assessee failed to include a sum of Rs. 1.50 lakh as interest income in its total income as shown in the CASS. Accordingly, he made this addition of Rs. 1.50 lakh. 8. Aggrieved, assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. In this connection, we relied on the decision of Hon'ble Supreme Court in the case of Godhra Electricity Co. Ltd. vs. CIT 225 ITR 746 (SC) wherein the extract reproduced below:- "The tribunal had rightly held that the claim at the increased rates as made by the assessee company on the basis of which necessary entries were made, represented only hypothetical income and the amount in question brought to tax by the Income Tax Officer did not represent income which had really accrued to the assessee company during the relevant previous year." In the said judgement the Hon'ble Supreme Court reiterated the following observations made by it earlier in the case of CIT v. Shoorji Vallabhdas & Co. [46 ITR 144] 'Income tax is a levy on income. No doubt, the Income tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or it receipt but the substance of the matter is income. If income does not result at all. There cannot be a tax even though in book keeping, an entry is made about a hypothetical income, which does not materialize.' After referring to the ratios laid down in the earlier decisions, the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the onus will be on the Assessing Officer to find such evidence and that the assessee cannot be expected to discharge the impossible burden of proving a negative i.e., that the assessee did not received such rent. 6. With the observations as above, and for the limited purposes set out above, the matter stands restored to the file of the Assessing Officer. Needless to add that any material, adverse to the assessee, will have to be confronted to the assessee by the Assessing Officer, and that, in case Assessing Officer intends to pass any fresh order as a result of these directions, he will do so only after giving due and fair opportunity of hearing to the assessee, in accordance with the law and by way of a speaking order." Taking a consistent view on the aforesaid order in the case of Devendra Nath Dewedi (supra) we reverse the orders of Authorities Below and this ground of assessee's appeal is allowed. 11. Third issue in this appeal of assessee is as regards that Ld. CIT(A) erred in confirming the action of AO by sustaining the addition of the expense including the interest disallowed u/s. 14A r.w.s 8D of the IT Rules in computing the book profit u/s. 115JB of the Act. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while computing book profit under sec. 115JB of the Act. In other words, no addition to the book profit shall be made on account of alleged expenditure incurred to earn exempt income while computing income u/s115JB of the Act. Thus, this ground No.2 is decided in favour of the assessee." Taking a consistent view in the case of Quippo Telecom Infrastructure Ltd. (supra) and facts and circumstances of the present case, we reverse the orders of Authorities Below and this ground of assessee's appeal is allowed. 15. Fourth ground raised by assessee is as regards that Ld. CIT(A) erred in not reducing the lower of loss brought forward or unabsorbed depreciation as per books of account while computing the book profit u/s 115JB of the Act. 16. At the outset, we find that as per the provision of law, assessee is entitled to claim the deduction for lower of the amount either loss brought forward or unabsorbed depreciation. We accordingly direct the AO to allow the loss brought forward or unabsorbed depreciation whichever is less as per books of account of the assessee in terms of clause (iii) u/s 115JB of the Act. This ground is allowed in favour of assessee accordingly to law. 17. Last ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce tax with reference to the liability for tax under the amended section 115JB. The Tribunal upheld the order. On appeal: 'Held, that the last date of the relevant financial year was March 31, 2001, and on that day, admittedly, the assessee had no liability to pay any amount of advance tax in accordance with the law then prevailing. The amended provisions of section 115JB having come into force with effect from April 1, 2001, the assessee could not be held a default with respect to payment of advance tax. On the last date of the financial year proceeding the relevant assessment year, as the book profits of the assessee in accordance with the then provision of law were nil, there was no advance tax payable within the last day of the financial year preceding the relevant Assessment Year as provided in sections 207 and 208 or within the dates indicated in section 211. Interest could not be levied under sections 234B and 234C.' It was held that these additions have been made to the total income of assessee as a result of retrospective amendment in the Statute and assessee paid the tax. But there will be no interest on the aforesaid addition made u/s 234B and 234C in view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itten off the respective assets and therefore these transactions are out of purview of the provision of clause (i) to the Explanation of Sec.115JB of the Act. On the other hand, Ld DR relied on the order of Authorities Below. 23. From the aforesaid discussion, we find that assessee has actually written off bad debts from the sundry debtors and also written off the diminution in the value of investment from the respective items as appearing in the balance-sheet of assessee. From the facts of the case we find that assessee has not shown the bad debts and diminution in the value of investment on the liability side of its balance-sheet by creating any provision. Now the question before us is as to whether the amount actually written off against the sundry debtors and the value of investment requires any addition for working out the book profit u/s 115JB of the Act. We, with regard to the bad debt actually written off in the books of account, find that the action of the assessee is within the purview of law and outside the purview of the provisions of section 115JB of the Act. In this connection, we rely on the judgment of Hon'ble Karnataka High Court in the case of CIT v. Yokogawa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eating a provision for bad and doubtful debt, the assessee correspondingly simultaneously obliterated the said provision from its accounts by reducing the corresponding amount from loans and advances/debtors on the assets side of the balance sheet and consequently, at the end of the year, the figure in the loans and advances or the debtors on the assets side of the balance sheet was shown as net of the provision for the impugned bad debt. Then the said amount representing bad debt or doubtful debt cannot be added in order to compute book profit. Therefore, after the Explanation the assessee is now required not only to debit the profit and loss account but simultaneously also reduce the loans and advances or the debtors from the assets side of the balance sheet to the extent of the corresponding amount so that, at the end of the year, the amount of loans and advances/debtor is shown a net of the provisions for the impugned bad debt. Therefore, in the first place if the bad debt or doubtful debt is reduced form the loans and advances or the debtor from the assets side of the balance sheet the Explanation to section 115JA or 115JB is not at all attracted. In that context even if amend ..... X X X X Extracts X X X X X X X X Extracts X X X X
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