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TMI Blog2025 (3) TMI 293X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure is for which is not an offence or is not prohibited by law and was not spent in adventuring in any souvenir, brochure, tract, pamphlet or like published by a political party, the assessee is entitled to the benefit of deduction u/s 37 of the Act. In other words, the money spent by an assessee either in sponsoring a student or towards educational expenses of a student, in a discipline, in which the assessee is carrying on its business, is a valid expenditure and is entitled to deduction. On the basis of foregoing discussion and established principle of law, this ground deserves to be allowed in the favour of assessee. Disallowance on account of write-off of advances for the purpose of lease hold improvements - In similar facts, said issue already been decided in the favour of assessee in assessee / appellant's case for the AY 2004-05 position in law is well as settled as far as the provisions of section 36(1)(vii) read with section 36(2) of the Act is concerned. After 1/4/1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrevocable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee, subje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 343 - SC ORDER] On the basis of fact situation, mentioned hereinbefore that UPS is integaral part of computer and so entitled to depreciation @ 60% and we do not see any infirmity in the order of the Ld. CIT(A) on this issued and hence ground rasied by Revenue is liable to be dismissed.
Addition as made on account of duty credit scripts but not utilized ignoring the material fact that the duty credit was offered for taxation by the assessee - HELD THAT:- Fact situation emerged from above discussion leads us to conclude that ground raised by Revenue is liable to dismissed as no anything contrary brought on record by Revenue to deviate from the observation and findings expressed by the Ld. CIT(A) and hence we inclined to dismiss this ground. X X X X Extracts X X X X X X X X Extracts X X X X ..... method applied consistently till the preceding previous year without assigning any reason whatsoever or arriving at any satisfaction when the disallowance of Rs. 1,98,89,751/- offered in the in the returned income was more than the amount of disallowance of Rs. 1,85,75,964/- as per turnover method. 3. Without prejudice to ground no. 1 & 2, the Ld. CIT(A) erred on facts and circumstances of the case in confirming disallowance of interest even on average value of investment foreign securities and average value of investments in unlisted securities for apportioning interest in the manner stipulated in as per provisions of clause (ii) of sun-rule(2) of Rule 8D. 4. That on the facts and circumstances of the case and in law the Ld. CIT(A) erred in confirming disallowance of Rs. 30,26,877/- on account of sponsoring of education expenses for persons specified u/s 40A(2)(b). " ITA No.- 3615/Del/2011 1. The order of the learned CIT(APPEALS) is erroneous & contrary to facts & law. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT (Appeals) has erred in restricting the Addition under section 14A to Rs. 6,96,25,921/- as against Rs. 9,03,01,996/- made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n short 'Ld. AO') computed total income as Rs. 29,15,00,876/- by making addition in different heads vide order dated 23.12.2010. Aggrieving with the aforementioned order, the assessee / appellant preferred appeal, which partly allowed by the Ld. CIT(A) vide impugned order. The Ld. CIT(A) while deciding the appeal filed by assessee, disallowance u/s 14A of the Act, was reduced to Rs. 4,43,57,450/- from Rs. 4,61,62,113/- and depreciation on UPS as integral part of computer at the rate of 60% allowed to assessee whereas disallowance by the Ld. AO of the education expenses of Rs. 40,59,060/- on account of the expenditure incurred towards sponsoring education expenses of Mr. Arjun Bhartia & Ms. Aashti Bhartia at foreign university was upheld, and confirmed disallowance of Rs. 5,66,812/- on account of write off advances for the purpose of lease hold improvements. 4. Aggrieved by the impugned order, both assessee and Revenue before us by preferring instant appeals, for adjudication of both appeals, we shall first take up appeal of assessee. ITA No. 3197/Del/2011 and ITA No. 1414/Del/2013 Ground No. 1 Ground no. 1 5. The Ld. AR submitted that the Ld. CIT(A) erroneously confirmed disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ms Ashti Bhartia is in nature of personal expenditure of Shri H.S.Bhartia, the Diretor of the appellant company, which cannot be stated to be laid out or expended wholly and exclusively for the purposes of business of the appellant company. As such, these expenses cannot be considered as allowable expenses under section 37(1) of the Act. Therefore, disallowance of the AO of the education expenses of Rs. 40,59,060/- on account of the expenditure incurred towards sponsoring education expenses of Mr. Arjun Bhartia and Ms. Ashti Bhartia at foreign universities is hereby upheld." 5.3 The Ld. AR further submitted that Mr. Arjun Bhartia had secured admission in one of the reputed universities viz Brown University, province, USA form which it can be gauged that he was scholarly, hardworking and would have been a valuable asset for the assessee company upon completing his studies and education course undertaken, viz Liberal Arts (Major in Economics) had intimate connection with the business of assessee company which is related with oil exploration and production of crude oil, trading of goods, shares and debentures etc. In this regard, the Ld. AR emphasized article published by Barry Camso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oing Graduation at Brown University, Providence, U.S.A. subject to the statutory approvals and compliances required, if any, was considered and the following resolution was passed. "RESOLVED THAT subject to the Statutory compliances and approvals required, if any, the consent of the Board be and is hereby accorded for sponsoring Mr. Arjun Bhartia to study Liberal Arts at Brown University, Providence, U.S.A. and Mr. S.S. Bhartia, Chairman and Director and Mr. H.S. Bhartia, Co-Chairman and Director of the Company be and are hereby severally authorised to enter into such agreement as may be necessary to sponsor Mr Arjun Bhartia for undertaking 4 years for graduating in Liberal Arts from Brown University, Providence, U.S.A. for study at Company's cost and expenses. RESOLVED FURTHER THAT for sponsoring Arjun Bhartia, the consent of the Board be and is hereby accorded for payment of all boarding, lodging and tuition fees etc., during the tenure of his course at Brown University, U.S.A and that the payment be made from our EEFC and Current account with ABN Amro Bank, New Delhi. RESOLVED FURTHER THAT Shri S.S. Bhartia and Shri H.S. Bhartia, Directors of the Company be and are her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business is in investments and securities. He wished to pursue an MBA after serving for an year with the company and committed himself to work for a further five years after finishing his MBA. There is nothing on record to suggest that such a transaction is not honest. Furthermore, the observation in Natco Exports (P.) Ltd. (supra) with respect to a policy appears to have been made in the given context of the facts. The Court was considerably swayed by the fact that the Director's daughter pursued higher studies in respect of a course completely unconnected with the business of the assessee. Such is not the case here. Dushyant Poddar not only worked but - as stated earlier - his chosen subject of study would aid and assist the company and is aimed at adding value to its business. 9. Whilst there may be some grain of truth that there might be a tendency in business concerns to claim deductions under Section 37, and foist personal expenditure, such a tendency its concerns to claim unspoken bias against claims for funding higher education abroad of the employees of the concert. As to whether the as this could have similarly assisted another employee unrelated to its management i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se in engineering. In that regard, they have entered into a written contract. While pursuing the studies, the student has rendered services, which is acknowledged by the assessee. Merely because in the agreement there was a clause that in default of his rendering services, he would return the sponsored money with interest, the genuineness of the agreement cannot be doubted. On the contrary, it only shows that the assessee had taken precaution to see that the interest of the assessee was protected by imposing such a condition on the student. Even otherwise, when the assessee is running an Engineering and Consulting Services, earning profits and. in pursuance of its business or profession, it laid out certain monies for education of a student in the very same field, such an expenditure cannot be held to be unlawful or prohibited by law. Having regard to the quantum of amount spent it cannot also be said that it is a devise to avoid payment of tax or to reduce the tax by such a device of sponsoring a student's studies abroad. In the facts and circumstances of the case, keeping in mind the amount extended towards the educational expenses and the nature of the education and also oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 38 and 39 reproduced as under: "38. On perusal of order passed by Ld. CIT (A), it is observed that Ld. CIT(A) has deleted addition by observing as under: "I have carefully considered the submissions made on behalf of the appellant, the findings of the Assessing Officer in the assessment order and the facts and circumstances of the case. The position in law is well. settled as far as the provisions of section 36(1)(vii) read with section 36(2) of the Act is concerned. After 1/4/1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrevocable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee, subject to the provisions of section 36(2) that such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year. As regards the amount of Rs. 64,318/-, 1 agree with the contention of the appellant. However, in respect of the balance amount of Rs. 1,45,205/- the twin conditions of allowability of bad debts written off are not fulfilled. It is further observed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome or receipt and that for maintaining such investments and other investment related activities, administrative expenses are attributable to them and the Ld. AO by stating so, disallowed made u/s 14A of the Act, r/w Rule 8 D of Rs. 4,61,62,113/-. The Ld. CIT(A) vide impugned order restricted the proportionable disallowance u/s 14A of the Act upto Rs. 2,55,46,261/-. 10. The Ld. AR relied upon the judgment passed by the Hon'ble Apex Court in the case of CIT vs. Essar Teleholdings Ltd. 401 ITR 445 (SC) in which held that the Rule 8D of the Income Tax Rules, 1962, is prospective in operation and could not have been applied to any AY prior to AY 2008-09, and also further submitted that previously in appeal for AY 2004-05, the Ld. CIT(A) applied the proportionate method which was accepted by the Revenue as no any appeal preferred and in AY 2005-06 as well, the Ld. AO computed disallowance u/s 14A as per the same proportionate method. It is also submitted that thereafter in the AY 2006-07, the Ld. AO computed disallowance u/s 14A applying Rule 8D of the Rules, the Ld. CIT(A) rejected the same and recomputed disallowance applying proportionate method was submitted back to the Ld. AO for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng disallowance under Rule 8D(2)(ii), which ought to have been excluded. 11.3 Consequent to assessment order being passed, the Appellant filed application dated 25.01.2011 under section 154 of the Act for rectification of mistakes, as sum of Rs. 1,98,89,750/- suo motu disallowed by the Appellant under section 14A of the Act read with Rule 8D of the Rules was not taken into cognizance by the AO, leading to double disallowance. The AO allowed the rectification application and recomputed disallowance under Rule 8D at Rs. 9,03,01,996/-, after excluding the aforesaid sum of Rs. 1,98,89,751/- already disallowed by the Appellant in its return of income. Vide order dated 06.05.2011, the CIT(A) upheld the computation of AO but granted partial relief by excluding interest expenditure of Rs. 4,98,33,047/- exclusively incurred by the Appellant on loans, which were specifically availed for acquisition of aircraft on which taxable income was earned and accordingly, restricted the disallowance to Rs. 8,95,15,671/-. ITA No.- 1414/Del/2013 Ground no. 1 & 2 13. The Ld. AR submitted that in the relevant previous year, the assessee / appellant company earned dividend income of Rs. 5,00,62,107/- an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad of taking into account total investment, investment attributable to dividend was required to be adopted and thereafter disallowance to be arrived and in this case, matter was remitted back to work out the tax effect to the Ld. AO who shall do so after giving due notice to party. Relevant para 8 and 9, are reproduced as under: "8. The Assessing Officer, instead of adopting the average value of investment of which income is not part of the total income, 1.e., the value of tax exempt investment, chose to factor in the total investment itself. Even though the Commissioner of Income-tax (Appeals) noticed the exact value of the investment which yielded taxable income he did not correct the error but chose to apply his own equity. Given the record that had to be done so to substitute the figure of Rs. 38,61,09,287 with the figure of Rs. 3,53,26,800 and, thereafter, arrive at the exact disallowance of .05 per cent. 9. In view of the above reasoning, the findings of the Income-tax Appellate Tribunal and the lower authorities are hereby set aside. The appeal is allowed and the matter is remitted to work out the tax effect to the Assessing Officer who shall do so after giving due noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration in accordance with the above directions. The appeal is partly allowed." 14.5 Following above submission and in established principle of law, the Ld. AR contended that the disallowance u/s 14A r/w rule 8D is required to be recomputed by taking into account in the "Average Value of investments and submitted and tabulated details of investment on which exempt income aggregating to Rs. 5,00,62,107/- was received during the relevant previous years, as under: S. No. Investment Dividend received Opening balance Closing balance 1. Jubilant Organosys Ltd. 2,74,60,830 14,09,71,276 14,49,58,367 2. Indusind Bank 6,60,060 1,55,25,000 1,55,25,000 3. Geo Enpro Petroleum Ltd. 1,11,80,000 55,89,300 55,89,300 4. Mutual Funds 1,07,61,217 31,70,25,413 1,88,67,304 Total 5,00,62,107 47,91,10,989 18,49,39,971 14.6 It is also submitted that disallowance should have been restricted to amount of dividend income earned during the relevant previous year. 14.7 Fact situation mentioned hereinbefore and by following above-cited binding judicial precedents in order to resolve dispute in proper perspective remitting this issue back in the file of the Ld.A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. |CIT(A) deleted the addition of Rs. 56,29,884/- which was made on account of duty credit scripts but not utilized ignoring the material fact that the duty credit was offered for taxation by the assessee. 18. The Ld. CIT(A) vide impugned order observed that the duty credit scripts do not came within the ambit of clauses (iiia), (iiib) and (iiic) of section 28 of the Act and nothing has been brought on record by the Ld. AO to show that duty credit scripts have been utilized by the appellant during the year under consideration. 19. The Ld. AR submitted that this issue squarely covered by judgment of Hon'ble Supreme Court in the case of CIT vs. Excel Industries 358 ITR 295 (SC), of which relevant para 28 as follow: "27. Applying the three tests laid down by various decisions of this Court, namely, whether the income accrued to the assessee is real or hypothetical; whether there is a corresponding liability of the other party to pass on the benefits of duty free import to the assessee even without any imports having been made; and the probability or improbability of realisation of the benefits by the assessee considered from a realistic and practical point of view (the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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