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TMI Blog2019 (8) TMI 288X X X X Extracts X X X X X X X X Extracts X X X X ..... rrants. Even the issue raised by the assessee with regard to absence or otherwise of the requisite satisfaction of section 14A of the Act is concerned, the same shall also be restored to the AO to be dealt afresh as per law. Disallowance of general and administrative expenses by applying Rule 8D(2)(iii) - Since it is found to be inconsistency with the position of law the disallowance is not maintainable. The learned CIT(A) has rightly set aside the same. Since the disallowance of interest u/s. 14A has been set aside to the AO as done by the CIT(A) for adjudication afresh as per law. Accordingly, the ground of appeal of the assessee is partly allowed as above and that of the Revenue is dismissed. Disallowance of inventory written off - HELD THAT:- AO disallowed the inventory written off by relying on the decision of CIT vs. Herdilla Chemicals Ltd. [ 2017 (10) TMI 421 - BOMBAY HIGH COURT] . We have further noted that the Hon ble jurisdictional High Court by considering the decision of Herdilla Chemicals Ltd. held that write off claimed is essential on the basis of obsolesces of any particular equipment that claimed as write off, which is essentially on account of deteri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service tax is allowable as deduction u/s 37(1). Thus, by accepting the submission of assessee we allowed the deduction u/s 37(1). In the result, this ground of appeal is allowed. Disallowance of interest on loan to its subsidiary company - HELD THAT:- As relying on assessee own for A.Y. 2006-07 case assessee stated that loans and advances which are under consideration have already been considered by the Tribunal in earlier years and decided the issue in favour of assessee allowing the claim of the assessee. The assessee stated that the issue now stands covered in favour of assessee. On the other hand, the learned Sr. DR fairly conceded that there is reduction in loans and advances what was in earlier years. We find that this issue is squarely covered in favour of assessee and against Revenue by the decision of the Tribunal in assessee s own case. Hence, respectfully following the same we allow the claim of the assessee. The orders of the lower authorities are set aside and this issue of assessee s appeal is allowed. Disallowance of capital advance and depreciation - AO disallowed written off capital advances given to vendors for purchase of enterprises resources plannin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, the assessee vehemently submitted that due inadvertence in computing book profit and a wrong figure due to typographical mistake was taken. We have noted that despite bringing the fact in the notice of CIT(A), CIT(A) not examined furnished by assessee. Similarly for provisions of recoveries, the lower authority has not examined the explanation furnished by assessee. Therefore, both the components of this issue are restored to the Assessing Officer to verify the fact as per the contention/explanation furnished by assessee before ld. CIT(A) as well as before the Tribunal and to pass the order afresh. In the result, this ground of appeal is allowed for statistical purpose. Addition u/s 50C - AO invoked the provision of section 50C and increased the sale consideration by 10%, which resulted in difference in the capital gain - HELD THAT:- Before the CIT(A), the assessee furnished detail submission and specifically stated that valuation considered by assessee on transfer of land, is the same as that considered by stamp duty authority. CIT(A) instead of giving any finding over the explanation/submission furnished by assessee confirmed the action of AO. Therefore, considering the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT (A) erred in not appreciating that, though the said amount has been debited to expenses account, an equivalent credit entry has been made to raw material consumption account, thereby reducing the raw material consumption and resulting in no impact on the Profit and Loss account; 3.In view of the above grounds, the Appellant prays that disallowance of inventory written off amounting to ₹ 23,480,619 ought to be deleted. Ground III; Disallowance on account of non- deduction of TDS of ₹ 1,178,136 1. On the facts and circumstances of the case and in law, the CIT (A) erred in disallowing the expenditure of ₹ 1,178,136 under section 40(a)(ia) of the Act on the ground that no tax was deducted at source on payments made to Mr. Bhandara; 2. In doing so, CIT (A) failed to appreciate and ought to have held that: a. the Appellant Company has not been able to comprehend the nature of transactions and payments made to Mr. Jehangir Homi Bhandara; b. the principles of natural justice have been violated as the details of the transactions relating to Mr. Bhandara, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) failed to appreciate and ought to have held that: a. the write off relating to capital advanced to vendors of ₹ 1,553,840 on unsuccessful ERP project was in the course of business of the Appellant Company and therefore should have been allowed as a revenue expenditure/ loss under the Act; b. the depreciation of ₹ 1,923,421 was grouped under depreciation schedule of the books of account and was voluntarily disallowed while computing income under the normal provisions of the Act. The aforesaid disallowance therefore led to double disallowance of depreciation. 3. The Appellant, therefore, prays that disallowance of capital advance and depreciation ought to be deleted. I Ground VII: Disallowance of Prior period expenditure of ₹ 13,175,381 1. On the facts and circumstances of the case and in law, the CIT(A) erred in disallowing prior period expenses of ₹ 13,175,381. 2. Without prejudice to the above, if these expenses are disallowed in the year under consideration, then the Appellant humbly prays that they should be allowed in the respective Assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computation of capital gains. 3. The Appellant, therefore, prays that disallowance under section 50C should be deleted. The only Ground of appeal raised by the Revenue reads as under: Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is right in restoring the issue of disallowance of ₹ 6,31,74,997/- u/s. 14A as per rule 8D to the Assessing Officer s file and directing that disallowance to be as per immediate preceding year in the light of observation of jurisdictional High Court in the case of Godrej Boyce Mfg. Co. Ltd. vs. DCIT 234 ITR 1 (Bom.) as the decision of Hon ble Bombay High Court is not accepted by the Department. 3. In so far as Ground of appeal no.1 of the assessee and the ground raised by the Revenue are concerned, both relate to the disallowance made by the Assessing Officer u/s. 14A of the Act. Since the two grounds relate to the same issue they are being dealt together. 4. Briefly, the relevant facts are, during the course of assessment proceedings, the Assessing Officer noted that the assessee has earned dividend income from its subsidiari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the footing that the provisions of Rule 8D of the Rules are not applicable for the instant assessment year, as the same is applicable from assessment year 2008-09 onwards. This proposition is indeed in the case of Godrej Boyce Manufacturing Co. Ltd. vs. DCIT (supra), which continues to hold the field as the said provision has not been altered by any other authority. Hence, the decision of the CIT(A) on this aspect is confirmed and the ground raised by the Revenue is dismissed. 7. In so far as the plea of the assessee is concerned, our attention has been drawn to the proceedings in the assessee s own case by way of orders of the Tribunal right from A.Y. 2002-03 to A.Y. 2006-07. In so far as A.Y. 2002-03 is concerned, on the issue of interest expenditure the Tribunal restricted the disallowance to ₹ 7,61,476/- on account of finding recorded by the CIT(A) that some investment had nexus with the borrowed funds which yielded exempt income. In A.Y. 2003-04, vide order dated 10.08.2016, in ITA Nos. 6721 6580/Mum/2007, the Tribunal deleted the entire addition of interest expenditure mainly on the ground that during that year dividend income was not exempt u/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e claim of the assessee has to be deduced from the assessment order and there is no straight jacket formula requiring the Assessing Officer to use any particular language or form. So long as the order of Assessing Officer indicates that he is not satisfied with the correctness of the claim of the assessee or claim of the assessee that no expenditure has been incurred, the Assessing Officer has to proceed in the manner indicated Rule 8D(2). 10. We have carefully considered the rival submissions. We are conscious that each assessment year is an independent unit of assessment and is liable to be decided on a unit basis. So far as certain facts for more than one assessment year are definitely required to be adjudicated in a uniform manner. We are saying this for the reason that though the factual assertions of the assessee having substantial own funds which are more than the investments that yielded interest free income, we are conscious of the facts that out of total investments of ₹ 132.24 crore, nearly ₹ 2.5 crore have been made during the year whereas the balance are brought forward from earlier years. So far as the earlier years are concerned, fact as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ten off holding that there is nothing which can positively indicate that the decision of write off was based on any material available during the year and items in question were steel lying with the assessee. During the previous year, the assessee had written off ₹ 2,34,80,619/- in its books of account towards reduction in value of inventory. The said reduction in respect of obsolete stock, non-moving items, slow moving items and other item of spare parts accessories etc., which were of no utility pursuant to main product, which became outdated. The written off pertains to following divisions: Division Amount in (Rs.) Textile division 4,514,666 Engineering division 357,285 FAL Energy 18,608,668 Total 23,480,619 15. The ld. AR for the assessee further submits that against the inventory written off, the assessee had, during the year created a provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and tear and that assessee would be entitled to write off in Profit Loss Account. We have further noted that the assessee s similar claim for A.Y. 2010-11 and 2011-12 has been allowed by First Appellate Authority in order dated 17.11.2016 and 20.03.2017 respectively. Therefore, considering the peculiarity of fact for the year under consideration, we are of the view that the assessee is entitled for inventory written off, however for limited purpose, the issue is restored to the file of Assessing Officer to verify the fact, if equivalent provision thereof had been made in the books and there is no impact on Profit Loss Account and allow the relief to the assessee in accordance with law. In the result, this ground of appeal is allowed for statistical purpose. 18. Ground III relates to disallowance on account of non-deduction of TDS. The ld. AR of the assessee submits that during the year under consideration, the Assessing Officer on the basis of information received from ITO-1 that assessee paid ₹ 11,78,136/-. The Assessing Officer requested for the details based on the information. The Assessing Officer without providing any information or details added ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities made the addition without providing opportunity and supply the information received from ITO-1(1)(1) before making addition against the assessee. In our view, the ld. CIT(A) was not justified in confirming the action of Assessing Officer, when the assessee has specifically stated that the alleged recipient i.e. Jahangir Homi Bhandara is not known to the assessee. Therefore, considering the fact that the Assessing Officer neither shared the information/material evidence allegedly received by him nor brought any material to prove that assessee made any payment of expenditure attracting the provisions for disallowance under section 40A(ia). Hence, we direct the Assessing Officer to delete the disallowance of ₹ 11,78,136/-. In the result, this ground of appeal is allowed. 21. Ground No. IV relates to disallowance of service tax written off (the AO and ld. CIT(A) referred it as sales tax). The ld. AR of the assessee submits that assessee in its books of account, accounted the payment of rent net of service tax. The amount paid towards service tax was debited to a separate account in the books for availing credit against the output service tax liability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion of ld. AR of the assessee we allowed the deduction under section 37(1). In the result, this ground of appeal is allowed. 24. Ground No. V relates to disallowance of interest on loan to its subsidiary company. The ld. AR of the assessee submits that this ground of appeal is covered in favour of assessee by the decision of Tribunal for A.Y. 2002-03 dated 12.06.2013, for A.Y. 2003-04 dated 10.08.2016, for A.Y. 2005-06 dated 28.02.2017 in and again for A.Y. 2006-07 in ITA No. 5539/Mum/2011 dated 05.04.2017 by following all earlier decisions. The ld. DR submits that assessee has sufficient interest free funds available with the assessee. Therefore, no disallowance under section 36(1)(3) was warranted. The ld. AR further submits that the issue is also covered by the latest decision of Hon ble Supreme Court in CIT vs. Reliance Industries reported in [2019] 410 ITR 466 (SC). The ld. AR of the assessee submits that the Assessing Officer relied upon the decision Phalatan Sugar Works Ltd. (208 ITR 989), which has been reversed in S.A. Builders vs. CIT [288 ITR 1 (SC)]. 25. On the other hand, the ld. DR for the revenue submits that this issue may be sent b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the assessee has failed to establish the commercial expediency in advancing interest free funds to the subsidiary. Though, assessee had submitted before the learned Commissioner (Appeals) that the advances were made out of common pool having borrowed funds and self generated funds, however, the learned Commissioner (Appeals) has observed that in the absence of any verification that the advances to the subsidiary companies was only out of self generated income, assessee s claim cannot be accepted. In this context, it is necessary to observe, the Assessing Officer in Para 3.5 of the assessment order has mentioned that the total funds available with the assessee amounted to ₹ 370,18,68,522, out of which, ₹ 167,20,18,599, was borrowed funds. Thus, from the aforesaid figures, it is very much evident that the assessee was having sufficient self generated / interest free funds available with it to make interest free advance of ₹ 25,67,46,923. In fact, the learned Commissioner (Appeals) has also observed, advances have been made out of common funds available with the assessee which includes both self generated funds and borrowed funds. As held by the Hon'ble Jurisd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 19,23,421/- was included in the total amount of book depreciation of ₹ 271013681/-. There was no separate debit to the Profit Loss Account on account of accelerated depreciation. The total amount book depreciation of ₹ 271013681/- was disallowed by assessee in calculating the taxable income for the year. The depreciation claimed, as deduction by assessee during the year was as per section 32 of the Act. ₹ 40,78,10,250/- pertains only to those assets which have been put to use by the assessee and does not include in accelerated depreciation. Effectively accelerated depreciation of ₹ 19,23,421/- was offered to tax by assessee on account of disallowance of entire amount of book depreciation and disallowance by Assessing Officer resulted in disallowing the accelerated depreciation twice. On the disallowance of advance to vendor for ERP software of ₹ 15,53,840/-, the ld. AR submits that during the period the assessee was in process of implementation of ERP system for Patvolk (Shipping Division). The ERP system did not metalized as per expectation and therefore, the implementation of ERP system was scrapped. The advance is given to various vendor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s capital in nature. In our considered view, it is settled legal position that the expenses incurred by assessee on software are revenue in nature. Moreover, the implementation of software was not materialized. Thus, it is purely a business loss and is allowable expenses. So far as disallowance on account of depreciation on accelerated basis of ₹ 19,23,421/- is concerned. The ld. AR of the assessee vehemently submitted that accelerated depreciation of ₹ 19,23,421/- was offered to tax by assessee on account of disallowance of entire amount of book depreciation and disallowance by Assessing Officer resulted in disallowing the accelerated depreciation twice and it should be deleted. We have noted that the lower authority has not examined the clam related to the factual explanation furnished by assessee on depreciation on accelerated basis. Therefore, this part of disallowance is restored to the Assessing Officer to verify the fact as explained by assessee before ld. CIT(A) as well as before us and grant relief to the assessee in accordance with law. 32. Ground No. VII relates to disallowance of prior period expenditure of ₹ 1,31,75,381/-. The ld. AR o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 53 , it was held that actual payment is not necessary for purpose of deduction and it is sufficient if liability to bonus is incurred according to method of accounting upon basis of which profits or gains are computed. Considering the decision of jurisdictional High Court, we are of the view that the assessee is entitled for claiming prior period expenses. However, the lower authority has not examined the expenses. Therefore, we restore this issue to the file of Assessing Officer to verify fact and expenses and allow the same in the year to which is pertains. In the result, this ground of appeal is allowed for statistical purpose. 35. Ground No. VIII relates to provision for contingencies and recoveries for calculation of books profit. The ld. AR of the assessee submits that he is not pressing provision of doubtful debts and advances of ₹ 25,15,054/-, provision for doubtful debts advances (schedule-10) of ₹ 4,85,06,535/- and provision for diminution of value of investment of ₹ 13,63,841/-. The ld. AR submits that he is pressing only remaining two items i.e. provisions for contingencies for ₹ 59,45,570/- and provision for recoveries 8,18,62,43 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. Similarly for provisions of recoveries, the lower authority has not examined the explanation furnished by assessee. Therefore, both the components of this issue are restored to the Assessing Officer to verify the fact as per the contention/explanation furnished by ld. AR of the assessee before ld. CIT(A) as well as before the Tribunal and to pass the order afresh. In the result, this ground of appeal is allowed for statistical purpose. 38. Ground No. IX relates to addition under section 50C of ₹ 1,63,55,585/-. The ld. AR of the assessee submits that during the year under consideration, the assessee had sold three immovable properties. These immovable properties comprise of sale of land and building. The valuation considered by the assessee on transfer of land is same as considered by Stamp Valuation Authority for the purpose of computation of Capital Gains and thus the sale consideration offered by the assessee was not lower as compared to the stamp due value. The ld. AR submits that Assessing Officer may verify the stamp valuation as the assessee adopted the same value as per the rate fixed by stamp duty authority. 39. On the other hand ..... X X X X Extracts X X X X X X X X Extracts X X X X
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