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TMI Blog2016 (8) TMI 275X X X X Extracts X X X X X X X X Extracts X X X X ..... m though without stating the reasons. Any attempt on his part to reopen the issue is based on change of opinion. Claim of expenditure under the head of ‘Professional Services and Legal Fees’- Held that:- This amount of ₹ 3.15 crores which the Assessing Officer disputes by way of expenditure was never claimed as such in the original return itself. The audited account referred to a larger sum of ₹ 4.38 crores which was amortised and the break up of premium amortised during the period under consideration includes a total of ₹ 3.15 crores which is a total of premium with respect to 5 different investments. This precise figure which the Assessing Officer wants to take into consideration for the purpose of disallowance as capital expenditure. When we find that no such claim of revenue expenditure was made, the essential requirement of income chargeable to tax having escaped assessment on this ground fails. - SPECIAL CIVIL APPLICATION NO. 18773 of 2014 - - - Dated:- 3-8-2016 - MR. AKIL KURESHI AND MR. A.J. SHASTRI, JJ. FOR THE PETITIONER : MR B S SOPARKAR, ADVOCATE FOR THE RESPONDENT : MR KM PARIKH, ADVOCATE ORAL ORDER (PER : HONOURABLE MR.JUSTI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that an amount of ₹ 8,51,00,000/- was received by the assessee as a onetime final settlement of this loan which was required to be deducted from the claim of bad debts of ₹ 11,18,81,780/-. Therefore, bad debts to the extent of ₹ 2,67,81,780/- was only allowable u/s.36(20(ii) of the IT Act instead of claim of bad debts of ₹ 1,18,81,780/-. Thus an amount of ₹ 8,51,00,000/- is required to be disallowed out of claim of bad debts. (iii) On examination, it is found that the assessee has claimed expenditure under the head professional services legal fees and which are of personal in nature and not expended wholly and exclusively for the purpose of business of the assessee. The expenditure of ₹ 75,000/- was in the nature of personal expenditure and of ₹ 93,55,633/- was in the nature of expenditure relatable to the other assessee. Accordingly, the expenditure amounting to ₹ 94,30,633/- is not an allowable expenditure in terms of provisions of section 37 of the Act and is required to be disallowed. (iv) The assessee has claimed expenditure amounting to ₹ 3,15,90,000/- on account of the premium paid on purchases of debenture/bond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iv) Learned counsel lastly contended that the notice for reopening was issued at the instance of the audit party and therefore, was not valid. 6. On the other hand, learned counsel, Mr.K.M.Parikh for the department opposed the petition contending that Assessing Officer had recorded proper reasons for issuing the notice for reopening. Various issues mentioned in the reasons were not examined during the scrutiny assessment. The notice which has been issued within a period of 4 years from the end of relevant assessment year therefore, is valid. 7. Having thus heard learned counsel for the parties, we may deal with the 4 grounds mentioned by the Assessing Officer in the reasons recorded one by one. The first ground pertains to the possible MAT liability. The Assessing Officer noted that in the order of assessment, book profit of the assessee was worked out at ₹ 51.85 crores. The MAT liability would work out to ₹ 57.1 crores. Since the tax liability on the assessee as per the normal computations is higher than the tax liability under the MAT provisions, at present there is no tax liability arising. However, if the assessee succeeds in appeal against the order of assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of bad debts. Assessing Officer noticed that the assessee had received a sum of ₹ 8.51 crores as one time full and final settlement of the loan. According to him, therefore after deducting such sum from the loan amount of ₹ 11.18 crores, the balance of ₹ 2.67 crores (rounded off) alone was allowable under Section 36(2)(ii) of the Act. Instead the assessee had claimed the entire amount of ₹ 11.18 crores. Thus, said sum of ₹ 8.51 crores was required to be disallowed towards the claim of bad debts. 10. In the context of this ground, the assessee in the objections raised before the Assessing Officer had pointed out as under : B. Bad debts written off : NDDB had given loan to Regional Telibiya Utpadak Sangh Ltd. Mehsana, i.e. Mehsana Oil Union, from which ₹ 11.18 crores of principal amount and ₹ 11.13 crores of interest was receivable in aggregate. A one-time settlement was reached with the said party and the party paid ₹ 8.51 crores as full and final settlement against its total outstanding against principal loan. As per 3.9 of the terms of the original loan agreement any payments due and payable are to be appropr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and was written off and was in addition to the interest amount of ₹ 2.62 crores which also remained unpaid and was written off. 13. Quite apart from this explanation, we notice that during the scrutiny assessment, this question had come up for consideration by the Assessing Officer. In a letter dated 25.7.2011, the Assessing Officer had called upon the petitioner to justify this claim as under : 17. Justify claim of bad debts written off of ₹ 11.18 crores debited to income and expenditure a/c. 14. In reply to such query, the petitioner under a letter dated 25.8.2011 had conveyed the following : Reply to Point no.17 (Justification of bad debts written off) During the year under consideration NDDB has written off as bad debts ₹ 11,18,81,780.93 on one time settlement with Regional Telibiya Utapdak Sangh Ltd. Mehsana in respect of the loan given to them. This has been done after the receipt of ₹ 8.51 crores from the said party in full and final settlement towards outstanding. NDDB has written off the principal amount of ₹ 11,18,81,780.93 by debiting the Income and Expenditure account. Due to this write-off, loan account of the party became n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said society under PFA Act. Considering the society had become defunct and NDDB s chairman was the chairman of the society, the case was defended by NDDB. In this regard, NDDB made payment to Advocate Nageswara Rao of ₹ 75,000/- on 29.1.2009. Considering the facts mentioned above, the legal expenses of ₹ 75,000/- are allowable as business expenditure under section 37 of the Act. D. Professional fees : NDDB has drawn up National Dairy Plan (NDP). The implementation of the same was a complex task which required time, investment and enhanced professional management skills. Therefore, to accomplish this task NDDB was considering the decision to introduce the strategic partner in its subsidiary company, Mother airy Fruits Vegetables Pvt. Ltd. (MDFVL). Generally such specialized issues are required to be examined by a Merchant Banker / Investment Banker, who evaluates the business plan and derives the requirement of fund. Based on their valuation, they would also advise on the proportion of dilution of shareholding by the promoter / fresh issues and extent of debt to be raised. Accordingly as per advice of Board members, SBI Capital Markets Ltd. and Matt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NDDB. Applicable TDS has been deducted by MDFVPL. No. service charges has been charged by MDFVPL. Accordingly, no TDS has been deducted for the reimbursement made to MDFVPL. 21. It was after such examination during the original assessment that the Assessing Officer in the order of assessment made no disallowance. It can thus be seen that all legal and professional fees paid by the petitioner during the year under consideration in excess of ₹ 50,000/- and ₹ 1 lacs respectively, came up for consideration of the Assessing Officer when he called upon the petitioner to supply partywise details along with full name, complete communication address, PAN and TDS deducted and/or paid to such parties. If in the final order of assessment he made no disallowance without giving reasons, surely it cannot be argued that he had not scrutinized the issue. We may recall that in response to queries raised by the Assessing Officer in this respect, the petitioner had given minute details. The petitioner had pointed out that sum of ₹ 75,000/- was paid to an Advocate and sum of ₹ 80.92 lacs was paid regarding professional fees which was by way of reimbursement to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xtracts response from the assessee, thereafter in what manner such claim should be treated in the final order of assessment, is an issue on which the assessee would have no control whatsoever. Whether the Assessing Officer allows such a claim, rejects such a claim or partially allows and partially rejects the claim, are all options available with the Assessing Officer, over which the assessee beyond trying to persuade the Assessing Officer, would have no control whatsoever. Therefore, while framing the assessment, allowing the claim fully or partially, in what manner the assessment order should be framed, is totally beyond the control of the assessee. If the Assessing Officer, therefore, after scrutinizing the claim minutely during the assessment proceedings, does not reject such a claim, but chooses not to give any reasons for such a course of action that he adopts, it can hardly be stated that he did not form an opinion on such a claim. It is not unknown that assessments of larger corporations in the modern day, involve large number of complex claims, voluminous material, numerous exemptions and deductions. If the Assessing Officer is burdened with the responsibility of giving re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer Corporation of India Ltd. 504062 Power Finance Corporation Ltd. 2345744 Punjab National Bank 1,303019 Shown in note no.6 sub total (a) 31593991 Pertaining to current financial year National Housing Bank 592292 Indian Railway Finance Corporation 4360294 Nuclear Power Corporation of India Ltd. 74457 Power Finance Corporation Ltd. 6759664 Punjab National Bank 427315 National Bank for Agriculture and Rural Development (NABARD) 82212 Sub total (b) 12296234 Total offered to tax (as per computation) 43890225 24. From the above materials on record, it can be seen that this amount of ₹ 3.15 crores which the Assessing Officer disputes by way of expenditure was never claimed as such in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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