9911796707
TMI Blog2016 (9) TMI 1521X X X X Extracts X X X X X X X X Extracts X X X X ..... al loss should be disallowed, as held above also - Decided partly in favour of assessee. Exemption u/s 10(23G) - disallowance on account of receipts of financing to infrastructure sector and not the gross receipt - assessee filed revised computation during assessment claiming exemption of entire amount of gross receipt - AO allowed the claim of exemption relating to income computed on account of infrastructure sector eligible for claim of deduction u/s 10(23G) - CIT (A) further allowed relief partly modifying the order of the AO - HELD THAT :- Before us now, as per the working of the expenses, the same was not analyzed by the lower authorities. Hence, we remit the mater back to the file of the AO for fresh consideration. The only differential fact in the present case is that the assessee itself has disallowed direct expenses of ₹ 504,68,381/- by way of interest expenses for earning of income u/s 10(23G) which has been offered for disallowance. We also agree that only those expenses which are relatable to earning of exempt income can be claimed as deduction for computing net income u/s 10(23G). In term of the above and in term of the direction of the Coordinate Bench of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the matter of computation of the eligible deduction. In case of the assessee, the major cost is the interest cost which works out to about 80% of its total cost of operations Disallowance of prior period expenditure - year of assessment - HELD THAT :- Assessee has claimed these expenses incurred in the extra ordinary event such as merger of ITC with the assessee and according to the assessee, these expenses cannot be classified as prior period expenses quo the assessee. The assessee explained that as a result of merger of books of accounts, these prior period expenses, which in fact, was the result of recast of accounts for achieving uniformity and these are not exactly prior period expenses, because they arose in current year on account of the event of the merger. We find that Revenue has not contested that any objection was raised before Hon ble High Court before approving the scheme of merger of ITC with the assessee. Accordingly, we are of the view that the character of expenses became the expenses of the current year and are allowable. We allow this issue of assessee s appeal. Charging of interest u/s 234B in the present case is consequential in nature, hence, nee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We find that the AO noticed from the accounts of the assessee that profit on sale of investments was arrived at after providing for write off of investments of ₹ 75,53,07,871/- and this was claimed as deduction in the computation of filed along with the return of income on account of diminution in the value consequent to write off of investments. The CIT (A) partly allowed the claim of the assessee by observing in Para 6.3 of his Order as under:- 6.3 I have carefully considered the facts of the case and the submissions made before me. I find that in the instant case, the AO for the detailed reasons given by him was fully justified in rejecting the claim. However, in so far as the write-off of investments on conversion of loan arrears amounting to ₹ 12,09,03,673/- is concerned, the same can be allowed as business loss in view of the decision of Hon ble ITAT in the Appellant s own case for A. Y. 1981-82 decided in ITA Nos. 6038 to 6040/Mum/95. The Appellant thus succeeds in ground no.12 while the other grounds are decided against the Appellant . 5. We find that the AO disallowed the claim of business loss of 12,09,03,673/- on the basis that the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his, the assessee has raised following grounds No.3 and 4:- [3] On the facts and circumstances of the case and in law, the CIT (A) erred in partly confirming the interest expenses at ₹ 1,50,39,30,857 incurred for earning interest on tax free bonds instead of ₹ 5,04,68,381 being only direct expenses viz. interest on borrowings made for infrastructure financing and thereby allowing only part exemption under section 10(23G). [4] The CIT (A) also erred in not specifically dealing with the ground regarding guarantee commission excluded by the assessing officer while considering income exempt under section 10(23G) of the Act . The Revenue has raised following ground No.5:- 5(a). On the facts and circumstances of the case and in law, the learned CIT (A)erred in holding that computation made by the Assessing Officer in respect of exemption u/s. 10(23G) has to be modified. 5(b). On the facts and circumstances of the case and in law, the learned CIT (A) failed to appreciate that interest and other expenditure relatable to earning of infrastructure income was correctly computed in the assessment order. 5(c). On t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total interest expenses as per Revenue Account 4,439.67 Ratio for allocation (25,02,93/4439.67*100) 56.38% 3. Calculation of income exempt u/s 10(23G) A 1,371,052.701 Proportion of income out of borrowed funds (137,10,52,701*86.85%) B 1,190,752.329 Less: Expenses allowable (proportionate) 1,190,752,329*56.38% C 671,303.899 Net income exempt u/s. 10(23G) related to Borrowed bunds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee, the AO has disallowed exemption u/s 10(23G) of the Act on account of receipts of financing to infrastructure sector and not the gross receipt. The assessee filed revised computation during assessment claiming exemption of entire amount of gross receipt of ₹ 259,55,82,797/-. The AO allowed the claim of exemption at ₹ 49,42,75,309/- relating to income computed on account of infrastructure sector eligible for claim of deduction u/s 10(23G) of the Act. The CIT (A) further allowed relief partly modifying the order of the AO. Aggrieved, now the assessee as well as the Revenue, both are in appeal before the Tribunal. 8. Before us now, as narrated above, the assessee relied on the decision of the Coordinate Bench of the Tribunal for assessment year 1997-98 wherein no interest expense was disallowed by the assessee by claiming that it was the gross income to be allowed as exempt u/s 10(23G) of the Act. As in the earlier year, now, the assessee before us also filed alternative working of expenses, which was not before the lower authorities. Before us now, as per the working of the expenses, the same was not analyzed by the lower authorities. Hence, we remit the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for A. Y. 1998-99. No distinction has been made before us in the facts or legal position with regard to the issue under consideration. Under these circumstances, we direct the AO to follow the orders of the Tribunal for earlier years and decide this ground accordingly in favour of the assessee, after verifying the requisites facts. This ground is accordingly allowed for statistical purposes . 11. We also find that the Tribunal in assessee s own case for assessment year 1995-96 i. e. in ICICI Bank Ltd. Vs JCIT, SR-28, Mumbai (2008) 115 ITD 25 (Mumbai) has directed the AO to allow depreciation on all items claimed by the assessee. Respectfully following the said decision of the Tribunal in earlier year in assessee s own case, we direct the AO to allow the claim of the assessee after verifying the facts and figures. This issue of the assessee s appeal is thus allowed in both the years. 12. The next common issue in these two appeals of the assessee and of the Revenue is as regards to the order of the CIT (A) in partly confirming the disallowance of interest expenses of ₹ 32,72,33,318/- and 1% of managerial and administrative expenses. For this, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee, after considering the judgment of Hon ble Bombay High Court in the case of Emerald Co. Ltd. (supra). It is noted that in assessment year 1995-96 (order dt. 09.09.2015), the Tribunal decided this issue after considering not only the judgment of Hon ble Bombay High Court in the case of Emerald Co. Ltd. (supra) but after considering section 14A as well. Therefore, respectfully following the orders of earlier years, this ground is principally decided in favour of the assessee, subject to verification of facts of this year. Thus, A O is directed to follow the orders of earlier years and decide this ground after verification of facts of this year, and compute the deduction allowable to the assessee taking guidance from tribunal s orders of earlier years. This ground is treated as allowed for statistical purposes . 14. After hearing both the sides, we find that the AO while examining the assessee s own funds vis- -vis investments in shares will follow the decision of the Hon ble Bombay High Court in the case of HDFC Bank Ltd. (supra) and Reliance Utilities Power Ltd. (supra). In case, the investment is made out of assessee s funds, then, no interest expenses is to be allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are the issue in assessee s appeal for assessment year 19992000 in appeal No.4656/Mum/2004, hence, taking a consistence view these two issues in this year also dismissed. 17. As regards to Revenue s appeals it was claimed that the CIT (A) directed the A O to take into account interest costs attributable to non-fianc income in addition to administrative costs estimated at 10% while working out the computation u/s 36 (1) (viii) of the Act by following the order for assessment year 1996-97. The learned Counsel for the assessee that this issue was in assessment year 2000-01 and the A O himself allowed the claim of the assessee. She referred to Para 12.7 of the assessment order and the relevant finding is as under:- However, considering that the assessee incurred administrative cost, 10% of the non-fund-based income is treated as the expenditure incurred to earn such income. Certain income like interest on Government securities, as well as hire purchase operation do involves fund cost but they are not in the nature of finance business. For income from securities loans and advances, stock of hire, etc., the interest cost is allowed at 71% of such income. The asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t have been any scope for adjustment which could give rise to the said prior period expenses of ₹ 5,45,30,000/-. I entirely agree with the view and I hold that these expenses cannot be allowed in the Appellant s case. The nature of expenses or their liability in the earlier year would have been dependent on the admissibility of expenses in the earlier years and therefore the fact that they have been allowed in the earlier year in the Appellant s own case for A. Y. 1996-97 and in earlier years would not justify the allowability of these expenses which related to the amalgamating company in the year under consideration in the hands of the Appellant. Ground no. 36, 37 and 38 are thus held against the Appellant. Aggrieved, the assessee is in appeal before the Tribunal. 20. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the assessee has claimed these expenses incurred in the extra ordinary event such as merger of ITC with the assessee and according to the assessee, these expenses cannot be classified as prior period expenses quo the assessee. The assessee explained that as a result of merger of books of account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice, in any case has the approval of Hon ble Gujarat High Court in the case of Saurashtra Cement Vs. CIT (213 ITR 523). No doubt the assessee is following mercantile method of accounting but as is the settled legal position, even the expenses, liability in respect of which has crystallized in the relevant previous year, have to be allowed as deduction. It was not the case of the revenue. Nor is t here any material to establish so, that the liability did not crystallize in the relevant previous year. The disallowance was based only on a mention in the tax audit report which at best indicated that the expenses pertain to the earlier years but this fact per se cannot be a reason enough for disallowance. Keeping all these factors in mind as also entirety of the case, we deem it fit and proper to direct the Assessing Officer to delete the impugned disallowance of ₹ 8,27,339/-. We order accordingly . 23. After hearing both the sides and going through the Tribunal s order in earlier year, we confirm the order of the CIT (A) deleting the disallowance. We order accordingly. 24. The next issue in Revenue s appeal in ITA No.4824/Mum/2004 for assessment year 1998-9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 134 as under:- We find that for the asst. year 1986-87 also similar issue came up before the CIT (A) and he had set aside the matter to the file of A O with similar direction. When the matter came before the Tribunal, the Tribunal vide its order in ITA No.1224/Bom/90, sustained the direction of the CIT (A). However, for the year under consideration, at the time of hearing before us, the learned counsel for the assessee made an additional argument that since the amount is not received by the assessee, it cannot be charged as profit u/s. 41. In support of this contention, she relied upon the decision of Hon ble Apex Court in the case of United Provinces Electric Supply Co. (supra). However, as this claim was not made before the AO, he had not examined this aspect, i.e. whether the money is actually received by the assessee. As the matter has already been set aside by the CIT (A) back to the file of the AO, in our opinion, the assessee should raised this plea before the AO. We accordingly, while upholding the setting aside of this matter back to the file of AO, direct him to examine the assessee s claim in the light of the decision of Hon ble Apex Court in the case of Unit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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