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TMI Blog2008 (11) TMI 737X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as revenue are in appeal before us. 4. We first take up the appeal of the revenue in ITA No. 3834/Mum/2001. 5. First ground of appeal is as under: 1. On the facts and in the circumstances of the case the learned Commissioner (Appeals) erred in deleting the disallowance Under Rule 6B amounting to ₹ 1,91,489 in respect of articles presented on the ground that these articles did not bear the name and logo of the company. 6. This issue is covered in favour of the assessee by the order of the Tribunal in its own case for assessment year 1991-92, in ITA No. 3231/Mum/1997, order dated 24-6-2003. Vide para Nos. 3 and 4, the Tribunal has followed the decision of the Bombay High Court in the case of CIT v. Allana Sons (P) Ltd.(1995) 216 ITR 690 (Bom) in support of the view. We reproduce hereunder the relevant portion of the Tribunal order: 3. Regarding ground No. 2, the learned Departmental Representative contended that the Commissioner (Appeals) has given the relief by merely quoting Bombay High Court judgment in the case of CIT v. Allana Sons (P) Ltd. (1995) 216 ITR 690 (Bom). However, the assessing officer has observed that the assessee has disallowed the amount by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's ware in some manner or the other, which will be liable for consideration Under Rule 6B. Merely a complimentary note attached with the gift articles does not advertise the company's wares and the same is a mark of identification for the client to know as to who has presented the article. The assessee had given details in audit report and it is not the case of the assessing officer that details were not furnished. If at all, the assessing officer was not satisfied, he could have proved that the articles had the potential of advertising the company's wares. Instead of doing so, merely on the basis of a complimentary note, the articles are held to be of advertisement in nature. The basis of disallowance made by the assessing officer is not correct. In view of the foregoing, we uphold the finding of Commissioner (Appeals). Since the issue is covered by the decision of the Tribunal in assessees own case as well as the decision of the jurisdictional High Court of Bombay referred to above, we see no merit in this ground of appeal raised by the revenue. 7. Second ground of appeal is as under: 2. On the facts and in the circumstances of the case, the learned Commissioner ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng and selling units of the Unit Trust of India by the assessee company amounts to a speculation business or not. For the purpose of allowing set off of loss suffered by the company in such a business, the Hon'ble Supreme Court at pp. 282-283 has held as under: Relying on the above provision of the UTI Act, the revenue contends that if the UTI is a company and income from its units is dividend then ipso facto the units will have to be shares, therefore, the business of purchase and sale of units conducted by the assessee company will have to be deemed to be a business in shares which business, according to the revenue, attracts Explanation to Section 73. On this basis, it is contended that the business of purchase and sale of units by the assessee company amounts to a business of speculation. Both the Tribunal and the High Court have considered this argument as also the effect of Section 32(3) of the UTI Act and have come to the conclusion that the provision of the said Act is limited for the purpose of assessment of dividend income under the Act, and for deduction of tax at source. They have held that the legal fiction created by Section 32(3) of the UTI Act cannot be carrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT v. Travancore Titanium Products Ltd. (1990) 183 ITR 78 (Ker). However, the Commissioner (Appeals) has allowed relief to the assessee. The relevant portion of the order of the Commissioner (Appeals) is reproduced hereunder: 54. 14th ground is regarding disallowance of earlier years expenses to the tune of ₹ 2,46,28,814. On perusal of the assessment order at para 17, it is observed that the expenses have been incurred in the ordinary course of business and the liability for the same arose in the previous year relevant to current assessment year. The assessing officer states that since the company maintains mercantile system of accounting, the expenses actually crystalise in respect of previous years. The assessing officer has referred to the case of CIT v. Travancore Titanium Products Ltd. (1990) 183 ITR 78 (Ker) and on the basis of this judgment, the assessing officer has disallowed the claim and the amount of ₹ 2,46,28,814 is to be added to the total income of the appellant. 55. The matter has been considered and it is found that despite mercantile system of accounting followed by big companies like Ceat, there is every possibility that so many expenses could n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor hire and repairs, payments towards maintenance contract, arrears of telephone bills, electricity bills, water charges, property dues, arrears of lease rental, insurance premium, etc. Many of the expenditures classified under the above heads were, in fact, incurred by various site offices of the assessee company situated in different parts of India. Therefore, the final communication of incurring of those expenses are transmitted to the head office quite belatedly after the assessee consolidated those expenditures at head office level. This is not a phenomena of the impugned assessment year alone. This is a consistent practice followed by the assessee company. Even though a previous year is directly cut off on of 31st March of every year, the actual carrying on of business which is a live process, cannot be cut off as exactly especially in an organization like that of the assessee where activities are carried out through various site offices. Therefore, it is quite natural that there would be an amount of overflow of information after the close of the accounting year. Therefore, to certain extent, the claim of the assessee that the details of such expenditure were received only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) is on the expenditure incurred in connection with each day of the journey and if the allowable deduction is calculated in accordance with the said rule for each day of travelling, it will make no difference whether the calculation of the allowable expenditure is made for each trip or journey of for all the journeys in the year taken together. The total allowable expenditure would be the same. This interpretation gets support from Clause (b) of sub-r. (2) of r. 6D as substituted in 1992. Under the substituted Clause (b) also, the ceiling is on the expenditure incurred on travelling (other than the expenditure on travel) including hotel expenditure and allowances per day. 22. The revenue has made the disallowance in accord with the above decision of the Hon'ble Bombay High Court and therefore, we see no justification to interfere. The ground of appeal raised by the assessee is accordingly dismissed. 23. Ground No. 2 is as under: 2. The Commissioner (Appeals) erred in confirming the action of the assessing officer of disallowing guest house expenses of ₹ 26,22,428. 24. The Commissioner (Appeals) has dealt with this issue in para Nos. 5 to 9 of his order. The assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inment expenses is on two parts. First part is relating to the disallowance of ₹ 75,000 on account of food and tea expenses incurred on outsiders and Ceat Shoppees. Second part is relating to the disallowance of ₹ 75,000 on account of food, tea and coffee provided to the employees during conferences. 29. It has fairly been conceded by the learned Counsel for the assessee that the first part of disallowance of ₹ 75,000 is covered against the assessee by the decision of the Tribunal in its own case for assessment year 1988-89 (supra). The Tribunal, in assessment year 1988-89, vide para No. 4, held as under: 4. Regarding ground No. 1(a), disallowance of ₹ 51,735 the learned Authorised Representative of the assessee has contended that it is expenditure incurred on providing tea/coffee to outside parties at the canteen of head office, so this should not be disallowed. The learned Departmental Representative has supported the orders of authorities below. Considering the rival contentions we find this expenditure to fall squarely within entertainment and disallowance as such, we therefore, uphold the disallowance. Respectfully following, we uphold the disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 32. Ground No. 4 is as under: 4. The Commissioner (Appeals) erred in disallowing deduction on account of write off of leasehold land. 33. The learned Counsel for the assessee has conceded before us that the issue is covered against the assessee by the decision of the Tribunal in assessees own case for the assessment year 1988-89 (supra). The relevant portion of the order of the Tribunal, being para No. 11 is reproduced hereunder: 11. The learned Authorised Representative of the assessee has conceded that ground Nos. 4, 5(a) and (b) are covered against assessee vide Tribunals order for assessment year 1987-88. The learned Departmental Representative has supported the orders of assessing officer and Commissioner (Appeals). Considering the rival contentions, we dismiss ground Nos. 4, 5(a) and (b) of assessee. Respectfully following, we uphold the disallowance made by the assessing officer. 34. Ground No. 5, reproduced hereunder, is dismissed as not pressed: 5. The Commissioner (Appeals) erred in partly confirming taxing of notional interest as compensation on delayed sales proceeds of glass fibre division. 35. Ground No. 6 is as under: 6. The Commissioner (Appeals) erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer accordingly held that the assessee is not entitled to deduction in respect of the bad debts not arising in the course of business. 39. It had been explained before the Commissioner (Appeals) that assessee had deposited money with companies as and when it had surplus money and the income by way of interest earned on such deposits has always been assessed under the head "Profits and gains of business or profession". It had accordingly been pleaded that the assessee was entitled to deduction. 40. The Commissioner (Appeals), vide para 46 of his order, has held that the money advanced to the aforementioned parties was not in the regular course of business of the assessee. According to the Commissioner (Appeals), mere inter-corporate loans cannot be termed as business loans. He has accordingly held that the decision of the Bombay High Court in the case of CIT v. Jwala Prasad Tiwari (1953) 24 ITR 537 (Bom) was not applicable to the facts of this case. 41. We have given our careful consideration to the rival contentions. Section 29 of the Income Tax Act, 1961, provides that income from profits and gains of business or profession shall be computed in accordance with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee would be entitled to deduction on account of bad debts in computing the profits and gains of business under Section 36 of the Act, written off in the accounts. However, there is a condition under Sub-section (2), which has to be satisfied before a deduction can be allowed to the assessee. In this case it had been argued before the Commissioner (Appeals) that the income from interest from the companies has always been assessed under the head "Profits and gains of business" therefore, the debt related to the business transactions and provisions of Section 36 are thus applicable. No finding has been recorded by the Commissioner (Appeals) in this regard. We would, therefore, in the interest of justice, restore this issue to the file of assessing officer for the purpose of verification of the claim of the assessee about the interest from the deposits having been disclosed and assessed under the head "Profits and gains of business". If it is found that the interest income from the concerned companies has been declared and assessed under the head "Profits and gains of business", in that case, provisions of Section 36 would be applicable. Assessee havin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of CIT v. Citi Bank N.A. (1994) 208 ITR 930 (Bom), to support the contention that the interest not credited in the books of account is not liable to tax. It was further pointed out that ₹ 120 lakhs had been advanced to Agarpara Company Ltd. Our attention has been invited to the auditors report in the case of Agarpara Company Ltd., wherein para 2(xiv) the auditors have mentioned that the company is a sick industrial company within the meaning of Clause (O) of Sub-section (1) of Section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985. It has further been stated that the-company is not engaged in any manufacturing activity since 1985 and no reference has been made to the Board for Industrial & Financial Reconstruction. It was accordingly claimed that the decision of the assessee not to provide for any interest in respect of such loans was a prudent decision. It was accordingly pleaded that the addition may be deleted. 46. The learned Departmental Representative, on the other hand, contended that assessee was maintaining books of account on mercantile basis and there was a contract between the assessee and the parties, is by virtue of which interest accrued t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar to be just and reasonable in the light of provisions of Section 36(1)(vii) as amended, which provides for deduction on account of bad debts simply if the debt is written off in the books of account (see Bombay High Court decision in the case of CIT v. Star Chemicals (Bombay) P. Ltd. (2008) 11 DTR (Bom) 311 : 2008- TIOL-372-HC-MUM-IT, order dated 27-2-1998). Subject to fulfilment of certain conditions, assessee is entitled to deduction on account of bad debts as and when written off in the books of account. If the assessee is assessed to tax on the interest accrued, in the year under appeal, as per provisions of Section 36(1)(vii) the assessee would get a deduction in the year of write off in the books of account subject to fulfilment of certain conditions provided therein. The assessee by not debiting the interest to the parties and not crediting its income has impliedly written off the amount of interest accrued as per the agreement. The condition of offering the income first and then writing off the same as bad debt may in our view, be unnecessary exercise in certain circumstances. 49. The decision of the Hon'ble Supreme Court in the case of State Bank of Travancore (supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med that the advance to the subsidiary company was given out of self-generated funds and not from borrowings. The assessing officer, relying upon the decision of the Supreme Court in the case of State bank of Travancore (supra), held that interest on such loan was assessable to tax. 52. The Commissioner (Appeal) has confirmed the addition on the ground that the assessee has failed to establish that the loan given to the subsidiary company was out of self generated funds and not out of the borrowed funds. 53. Before us, the learned Counsel for the assessee relied upon the decision of the Supreme Court in the case of S.A. Builders Ltd. v. CIT (2007) 288 ITR 1 (SC), to support the contention that the interest paid on borrowed funds is to be allowed as a deduction even if money is paid to associate concerns for purposes of business. It was contended that the loan to the subsidiary company was given purely on business considerations. Therefore, no disallowance was justified. 54. The learned Departmental Representative, on the other hand, contended that the disallowance was justified. 55. We have given our careful consideration to the rival contentions. The Hon'ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra). We accordingly restore this issue to the file of. the assessing officer for the purpose of allowing an opportunity to the, assessee to establish that the loan given to the subsidiary company was for commercial expediency. If it is established that the loan had been advanced for commercial expediency, no disallowance of interest on borrowed funds would be justified. We direct accordingly. 56. Ground Nos. 9 and 10, reproduced hereunder, are dismissed as not pressed: 9. The Commissioner (Appeals) erred in confirming disallowance of debenture issue expenses of ₹ 16,15,344. 10. The Commissioner (Appeals) erred in confirming the disallowance of penalty paid under the Income Tax Act, 1961 (the Act). 57. Ground Nos. 11 and 12 are as under: 11. The Commissioner (Appeals) erred, in not accepting the appellants contention that profit on sale of undertaking of ₹ 10.54 crores is not liable for taxation. 12. The Commissioner (Appeals) erred in not holding that the block of asset should not be reduced after having held that the profit on sale of undertaking is to be assessed as capital gains. 58. The relevant facts relating to this issue are that the assessee had sol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tained in order to give them the equity shares of M/s Ceat Ltd. According to the Commissioner (Appeals), that value would be the value of acquisition of the fibre glass division. Rejecting the claim of the assessee that the cost of improvement if not workable, capital gain is not chargeable, the Commissioner (Appeals) has held that the decision of the Hon'ble Supreme Court in the case of CIT v. B.C. Srinivasa Setty (1981) 128 ITR 294 (SC) speaks of cost of acquisition and not cost of improvement. It has further been held that in any case the cost of improvement is known to the assessee and if no information is provided to the assessing officer, that would not prevent him from assessing the gain. The Commissioner (Appeals) has directed the assessing officer to work out the cost of the amalgamation company and ascertain the cost of improvement if any from the assessee. After taking into account the cost of acquisition and cost of improvement if any, the capital gain shall be calculated, as directed by the Commissioner (Appeals). 62. The assessee is aggrieved and is in appeal before us on the ground that the sale of the fibre glass division was a slump sale and not liable to tax. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n case the assessee fails in respect of ground No. 11 , then the ground of appeal No. 12 may be considered. Reliance, has been placed on the following decisions to support the contention that in the case of slump sale if the cost of acquisition cannot be worked out, no capital gain can be charged to tax: (1) CIT v. Artex Manufacturing Co. (1997) 227 ITR 260 (SC); (2) CIT v. Electric Control Gear Mfg. Co. (1997) 227 ITR 278 (SC); (3) Premier Automobiles Ltd. v. ITO (2003) 264 ITR 193 (Bom); (4) CIT v. Narkeshari Prakoshan Ltd. (1992) 196 ITR 438 (Bom); (5) Dy. CIT v. Modella Woollen Mills Ltd, (ITA No. 1034/Mum/2000, 386/Mum/2004 & CO. No. 86/Mum/2000, order dated 22-2-2006); (6)Coromandel Fertilisers Ltd. v. Dy. CIT (2004) 90 ITD 344 (Hyd); (7) CIT v. Carew Phipson Ltd. (2003) 260 ITR 668 (Cal); (8) Industrial Machinery Associates v. CIT (2002) 81 ITD 482 (And); (9) Salora International Ltd. v. Jt. CIT (2004) 88 TTJ (Del) 53 (2003) 129 Taxman 68 (Delhi); (10) Mahindra Sintered Products Ltd. v. Dy. CIT (2005) 271 ITR 1 (Mumbai)(AT); (11) Syndicate Bank Ltd. v. Addl. CIT (1985) 155 ITR 681 (Kar); (12) Dasaprakash Bottling Co. v. CIT (1986) 159 ITR 690 (Mad). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contended that one has to see the reasons in various cases decided as to why the sale of an undertaking has been held as not liable to tax. It was pointed out that in the case of Evans Fraser & Co. Ltd. (In Liquidation) v. CIT (1982) 137 ITR 493 (Bom), it was held that the consideration received by the assessee included the unascertained value of the goodwill. Since the cost of the goodwill could not be ascertained, it was held that the profit on the sale of the undertaking could not be subjected to tax. Reliance was placed on the decision of the Hon'ble Supreme Court in the case of CIT v. Artex Manufacturing Co. (supra), to support the contention that the profit on the sale of the undertaking was liable to tax. Reliance was also placed on the decision of the Bombay High Court in the case of Premier Automobiles Ltd. v. Income Tax Officer (supra), to support the contention of the taxability of capital gains in the case of transfer of an undertaking. Reliance was also placed on the decision of the Delhi Bench of the Tribunal in the case of Steriplate (P) Ltd. (supra) to support the contention that the profit on transfer of an undertaking is liable to tax. It was accordingly plea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of other assets it may be short-term or long-term capital gain depending upon the holding period. However, where a business as a whole is sold, business itself being a capital asset, it is treated as long-term or short-term capital asset depending upon the period during which the business was in existence. The capital gain is accordingly determined. However, where the cost is not ascertainable, there could possibly be no liability upto assessment year 1999-2000 before the incorporation of Section 50B. In the present case the cost of acquisition is ascertainable even according to assessees own admission before the Commissioner (Appeals). The cost of improvement, if any, has not been established by the assessee. If no cost of improvement is established, no benefit can be allowed to the assessee. The decisions cited on behalf of the assessee in regard to non-taxability of the capital gain on slump sale relate to such cases where the cost of acquisition is unascertainable. It may be pertinent to mention that it was laid down by the Hon'ble Supreme Court in the case of CIT v. B.C. Srinivasa Setty (supra), that where the cost of acquisition in the case of goodwill is unascertainabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at ₹ 30,23,573 and the balance amount of ₹ 11,50,400 was shown as the purchase consideration. The WDV of plant, machinery and dead stock, according to the assessees books, was ₹ 4,36,896. The difference between ₹ 15,87,296, the value of plant, machinery and dead stock as revalued, and ₹ 4,36,896, the WDV of plant, machinery and dead stock, according to the assessees books, came to ₹ 11,50,400. The Income Tax Officer held that the WDV of plant, machinery and dead stock according to the income-tax records was ₹ 3,32,276. After deducting the same from the amount of ₹ 15,87,296 for which the plant, machinery and dead stock were transferred to the company, the Income Tax Officer held that tax was payable under Section 41 (2) on the income of ₹ 12,56,020. The Appellate Asstt CIT, on appeal, held that the surplus was assessable under the head "Capital gains" and not under the head "Business". As regards the status of the assessee it was held that the assessee must be taxed in the status of an "AOP" and not in the status of a "registered firm". The Tribunal held that the surplus was taxable as bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. Further, the assessing officer will be required to decide on what basis indexation should be allowed in computing the capital gains and the quantum thereof. Lastly, the assessing officer will be required to decide the quantum of depreciation on the block of assets. It may be mentioned that these parameters which we have mentioned are not exhaustive. They are some of the parameters under the Act. Accordingly, we set aside the order of the Tribunal. We make it clear that Section 45 of the Income Tax Act applies in this case. This is on the footing that the Kalyan unit constituted the capital asset which has been transferred to PPL and on that basis the assessing officer will have to apply the parameters under Sections 45, 48 etc. and decide on remand whether any capital gains tax liability arises and, if so, what is the amount thereof. 70. In the light of the decision of the Hon'ble Supreme Court in the case of Artex Manufacturing Co. (supra) and the decision of the Bombay High Court in the case of Premier Automobiles Ltd. (cited supra), it becomes abundantly clear that whether any capital gain is chargeable to tax in the case of slump sale is a question to be determined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ropriate to restore this issue to the file of the assessing officer for consideration. Ground No. 12 raised by the assessee is thus allowed for statistical purposes. 72. Ground No. 13 is as under: 13. The Commissioner (Appeals) erred in not allowing the deduction of lease rent of ₹ 1.68 crores. 73. The relevant facts relating to this issue are that the assessee had claimed to have received a sum of ₹ 7.49 crores on account of sale of plant and machinery to various parties like Infra Structure Leasing and Finance Ltd., Kotak Mahindra Finance Ltd. and General Leasing Finance Ltd. The assessee further claimed to have taken the above plant and machinery back on lease. The assessee has claimed to have paid a sum of ₹ 1,68,09,722 as lease charges in the year under appeal. The assessing officer found that the WDV of the plant and machinery claimed to have been sold was only ₹ 12.11 lakhs. The assessing officer was of the view that the transactions referred to above fall within the ambit of "finance leasing" as per the guidance note on accounting, as reported in Chartered Accountants Journal, September, 1995. The assessing officer has quoted the defini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITD 537 (Mumbai MSB) (3) Dy. CIT v. Housing Development & Finance Corporation Ltd. (2006) 98 ITD 319 (Mumbai) He accordingly pleaded that the ground of appeal raised by the assessee may be dismissed. 76. We have given our careful consideration to the rival contentions. As expressed by the Hon'ble Supreme Court in the case of Asea Brown Boveri Ltd. (supra), the financial lease is a transaction current in the commercial world, The ICAI has also recognised the finance leasing by providing guidelines for the treatment to be given in the accounts in respect of such transactions. As per the Chartered Accountants Journal September, 1995, the finance leasing has been defined as under: The lease under which the present value of the minimum lease payment at the inception of the lease exceeds or is equal to substantially the whole of the fair value of the leased asset. The assessing officer has pointed out that the book value of the plant and machinery allegedly sold by the assessee is only ₹ 12.11 lakhs. But the assessee claims to have paid a lease rent of ₹ 1,68,09,722 for the year under appeal. This is unrealistic and unimaginable. The assessee has not established t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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