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TMI Blog2010 (12) TMI 1249X X X X Extracts X X X X X X X X Extracts X X X X ..... e is in appeal before us. 4. Ground Nos.I(a), (b) and (c) are against the sustenance of disallowance of expenses incurred for buy back of shares of ₹ 11,56,868. 5. The brief facts of the above issue are that during the course of assessment proceedings, it was inter alia observed by the Assessing Officer that the assessee has incurred expenses of ₹ 11,56,818 on buy back shares and the same has been charged to P L Account under various heads. On being asked, it was explained by the assessee that the decision to buy back of shares was taken at the Board Meeting held on 17.7.2000 and the said shares were not reissued and these stand distinguished after the buy back. Reliance was placed on the decision in the case of Bombay Burmah Trading Co. Ltd. Vs. CIT 145 ITR 793 (Bom). However, the Assessing Officer observed that in the initial issue and paid up share capital was ₹ 36,26,060 of ₹ 10 each. During the year, the assessee has bought back these shares thereby reduced the paid up capital. After buy back of 466981 shares, the issue and paid up share capital stood at 31,59,079 of ₹ 10 each. Thus the expenses incurred on this is in the nature of capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee s case. He further submits that the decision of the Hon ble Delhi High Court in the case of Selan Exploration Technology Ltd. (supra) is also not applicable as their Lordships have decided the issue relying on the decision of General Insurance Corporation (supra). He therefore submits that the buy back of shares are directly connected to the restructuring of the capital base of the assessee company, hence it is in the nature of capital expenditure and, therefore, the learned CIT(A) was fully justified in upholding the disallowance made by the Assessing Officer treating the same as capital expenditure. 8. We have carefully considered the rival submissions of the parties and perused the material available on record. We find that the facts are not in dispute inasmuch as the assessee has incurred the expenses of ₹ 11,56,818 on fees and other services, DD charges, advertisement and publicity, printing and stationary, traveling, telephone, sub-contract labour expenses, postage and filing fees to buy back its own shares and thereby increase in paid up capital. It is not the case of the revenue that the said expenses incurred by the assessee are not in relation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annual report of the company that the profits of the company, which were going down, improved considerably. The expenditure was incurred out of business expediency and, therefore, wholly and exclusively incurred in the course of carrying on of the business. It was deductible. 11. In Proto Engineering Co. Pvt. Ltd. (supra), the Tribunal following the decision in Echjay Industries Ltd. (supra) allowed the similar claim of the assessee. 12. Applying the ratio of above decisions to the facts of the present case and keeping in view the rule of consistency, we hold that the expenditure incurred by the assessee on buy back of shares does not result in any advantage of enduring nature and accordingly the disallowance of expenses of ₹ 11,56,868 made by the Assessing Officer treating the same as capital expenditure and confirmed by the learned CIT(A) is deleted. The grounds taken by the assessee are, therefore, allowed. 13. Ground No.II (a), (b) and (c) are against the sustenance of disallowance of expenses incurred for giving gifts to employees of ₹ 91,500. 14. The facts of the above issue are that it has been observed by the Assessing Officer that the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the interest of justice the matter should go back to the file of Assessing Officer and accordingly we set aside the orders passed by the revenue authorities on this account and send back the matter to the file of Assessing Officer who shall decide the same afresh in the light of our observations herein above and according to law after providing reasonable opportunity of being heard to the assessee. The grounds taken by the assessee are therefore partly allowed for statistical purposes. 18. Ground No.III (a), (b) and (c) are against sustenance of disallowance of bad debts of ₹ 10,21,641. 19. The brief facts of the above issue are that it has been observed by the Assessing Officer that the assessee has debited an amount of ₹ 11,84,973 towards bad debts written off. From the list of bad debts, the Assessing Officer observed that an amount of ₹ 79,200 represents the earnest money deposits for tenders placed with the PSUs. An amount of ₹ 84,132 represent the small balances running from the years 1998-99 to 2000-01, the balance of ₹ 10,21,641 represents other debts written off during the year. The Assessing Officer further observed that the earnes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an amount of ₹ 5,33,782 being prior period expenses in the P L Account. According to the Assessing Officer since the assessee is following mercantile system of accounting, the expenses relating to prior year are not allowable and hence he added the same to the income of the assessee. On appeal, the learned CIT(A) for the same reasons upheld the addition made by the Assessing Officer. 25. At the time of hearing, learned counsel for the assessee after referring to the schedule of prior period expenses along with copy of bills and vouchers appearing at page 30 to 48 of the assessee s paper book submits that all these expenses are dt.31.3.2001 and as the liability was determined and crystallized in the year under reference, therefore, it is allowable as a deduction. Reliance was also placed on the decision of the Tribunal in Escorts Limited Vs. Inspecting Asstt. Commissioner (2004) 89 TTJ 221 (Del) wherein on the similar facts and circumstances of the case, the Tribunal has allowed the deduction of prior period expenses vide para 121 of the order. He further submits that the said order has also been followed in Rashtriya Chemicals and Fertilisers Ltd. Vs. JCIT in ITA 1013/M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer and sustained by the learned CIT(A) is deleted. The grounds taken by the assessee are therefore allowed. 30. Ground No.V (a), (b) and (c) are against sustenance of unclaimed credit balances of ₹ 43,414. 31. The brief facts of the above issue are that from the details of the current liabilities filed, the Assessing Officer observed that amount of ₹ 43,414 has been shown as unclaimed credit balance . According to the Assessing Officer this shows that there are no claimants for this amount and the assessee should have written back in the computation which has not been done and accordingly he added the same to the income of the assessee. On appeal, the learned CIT(A) held that the appellant could not establish that it is still under obligation to make these payments and why these payments are still outstanding for their payment, upheld the addition made by the Assessing Officer. 32. At the time of hearing, the learned counsel for the assessee while referring to the details of unclaimed credit balances appearing at page No.49 of the assessee s paper books submits that the amount is outstanding from the year 1997 and 1998. However, the same has been written ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and loss account. The amounts were assessable in the hands of the assessee. 36. In CIT Vs. Sugauli Sugar Works Pvt. Ltd. (1999) 236 ITR 518 it has been held as under (headnote) : The following words in section 41(1) of the Income Tax Act, 1961, are important : the assessee had obtained, whether in cash or in any other manner whatsoever any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by him . The section contemplates the obtaining by the assessee of an amount either in cash or in any other manner whatsoever or a benefit by way of remission or cessation and it should be of a particular amount obtained by him. Thus, the obtaining by the assessee of a benefit by virtue of remission or cessation is sine qua non for the application of this section. The mere fact that the assessee has made an entry of transfer in his accounts unilaterally will not enable the Department to say that section 41(1) would apply and the amount should be included in the total income of the assessee. The principle that expiry of the period of limitation prescribed under the Limitati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Held, affirming the decision of the High Court, that the Appellate Tribunal as well as the High Court were justified in coming to the conclusion that the purchase tax liability of the assessee had not ceased finally during the year in question: despite the finality attained by the judgment in Neroth Oil Mills case (1982) 49 STC 249 (Ker), the other issues having bearing on the exigibility of purchase tax still remained and the dispute between the assessee and the Sales Tax Department continued. The unilateral act on the part of the assessee by way of writing off the liability in its accounts did not necessarily mean that the liability had ceased in the eye of law. 38. Since the assessee has shown the above amount as unclaimed credit balance in the books of account and has also shown as income for the Asst. Year 2002-03, we respectfully following the ratio of the decision in the case of T.V. Sundaram Iyengar Sons Ltd. (supra), hold that the amount of unclaimed credit balance of ₹ 43,414 is assessable as income in the year under consideration. There is no quarrel on the principle of law laid down in the two judgements (supra) of Hon ble Apex Court relied on by the lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n it has been held that apportionment of income on the pro rata was held to be possible as a rationale way of bifurcating expenses, was of the view that an amount of approximately ₹ 8 lakhs could be attributed to the earning of the dividend income considering all the administrative and overhead expenses. On appeal, the learned CIT(A) after considering the break up of dividend while upholding the action of the Assessing Officer for invoking the provisions of section 14A directed the Assessing Officer to make the disallowance to the extent of 10% of dividend income and thereby deleted the disallowance of excess 10% of dividend income. 44. At the time of hearing both parties have agreed that this issue is squarely covered by the judgement of Hon'ble jurisdictional High Court in the case of Godrej Boyce Mfg. Co. Ltd. Vs. DCIT, therefore, the issue may be decided accordingly. 45. Having carefully heard the submissions of the rival parties and perusing the material available on record, we find merit in plea of the parties that the issue stands covered by the recent judgment of the Hon ble Jurisdictional High Court in Godrej Boyce Mfg. Co. Ltd. vs. DCIT in Income Tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no more res integra and is covered by the decision of the Hon ble Supreme Court in CIT Vs. Alom Extrusions Ltd. (2009) 319 ITR 306, wherein their Lordships have considered the applicability of section 36(1)(va) read with section 2(24)(x) as well as 43B of the Act and it has been held that the amendment was curative in nature and applicable retrospectively with effect from April 1, 1988. 49. In CIT Vs. AIMIL Ltd. (2010) 321 ITR 508 (Del), their Lordships while observing that the assessee has deposited employer s contribution as well as employees contribution towards PF and ESIC after the due date, as prescribed under the relevant Act/Rule but before the due date for filing the return under the Income Tax Act have held that no disallowance could be made in view of the provisions of section 43B as amended by the Finance Act, 2003. 50. Respectfully following the above decisions, we find that there is no dispute that the assessee has made the above payments before the due date of filing of the return, therefore, we are of the view that no such disallowance is called for. The Assessing Officer is directed to allow the same after due verification and after giving reasonable opportu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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