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TMI Blog2008 (11) TMI 275X X X X Extracts X X X X X X X X Extracts X X X X ..... o s. 32(1) would apply only from 1st April, 2002. Again, In the case of CIT vs. Kerala Electric Lamp Works Ltd.[ 2003 (2) TMI 61 - KERALA HIGH COURT] held that Expln. 5 to s. 32(1) having come into effect only from 1st April, 2002 and assessee having not claimed depreciation for earlier years, AO was not justified in thrusting such depreciation on the assessee - Ld DR was unable to point out any decision directly on the issue which went against the decisions of Hon'ble Madras and Hon'ble Kerala High Court. Therefore, we are of the opinion that assessee has to succeed in its ground. AO is directed not to thrust the depreciation which was not claimed by the assessee for the impugned year. Income form other sources or not - service charges realised for various services, under corporate agreements relating to the commercial premises let out by it - HELD THAT:- We find from para 13 of the order of this Tribunal that similar grounds were dismissed by this Tribunal relying on the decision of SHAMBHU INVESTMENT P. LTD. VERSUS COMMISSIONER OF INCOME-TAX [ 2003 (1) TMI 99 - SC ORDER] of the apex Court. Respectfully following this decision, we dismiss ground No. 2 of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ER-ABRAHAM P. GEORGE, A.M.: These are appeals and cross-appeals filed by the aforementioned assessees and the Department, ITA No. 2102/Mum/2005 is of the assessee M/s Voltas Ltd. and relates to asst. yr. 2000-01. Cross-appeal filed by the Department for this assessment year is ITA No. 2415/Mum/2005. ITA No. 2104/Mum/2005 is of the assessee M/s Voltas International Ltd., Mumbai, for the same assessment year and related cross-appeal of the Department is ITA No. 2730/Mum/2005. In addition to this, there is an appeal of M/s Voltas Ltd., Mumbai for asst. yr. 2001-02 bearing number ITA No. 2103/Mum/2005 on which there is no cross-appeal. These appeals are taken up for disposal in the order mentioned above. ITA No. 2102/Mum/2005 (Assessee's appeal-Asst. yr. 2000-01-Assessee is M/s Voltas Ltd.) 2. Assessee M/s Voltas Ltd., Mumbai has taken altogether five grounds of which fifth ground is general and does not need any adjudication. 3. Vide its ground No. 1, assessee is aggrieved that learned CIT(A) confirmed thrusting of depreciation under s. 32 of the IT Act (in short 'the Act') on the assessee though it had not claimed it for the relevant assessment year amount of depreci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction in respect of depreciation in computing its total income. Therefore, according to him, the action of the AO was as per law. 8. We have perused the orders and heard the rival contentions. We find that the decisions relied on by the learned CIT(A) for confirming the forced allowance of depreciation on the assessee are not relevant in the facts of this case. In the case of Mother India Refrigeration (P) Ltd., Hon'ble apex Court was dealing with the priority in the order of allowance of current depreciation and unabsorbed depreciation qua unabsorbed loss and in the case of Andhra Cotton Mills, of the Hon'ble Andhra Pradesh High Court, was on the issue whether an assessee could withdraw the claim of depreciation made in the earlier return by filing a revised return. On the other hand, we find that Hon'ble Madras High Court in the case of Sree Senhavalli Textiles (P) Ltd. has clearly held that Expln. 5 to s. 32(1) would apply only from 1st April, 2002. Again, Hon'ble Kerala High Court in the case of CIT vs. Kerala Electric Lamp Works Ltd. (2003) 183 CTR (Ker) 182 : (2003) 261 ITR 721 (Ker) has held that Expln. 5 to s. 32(1) having come into effect only from 1st April, 2002 and as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere for meeting capital expenditure requirement of the company and vide terms of sanctions could not be utilized for any other purpose. For the debenture money, it was explained that as per the terms of debenture issue, it could only be used for meeting the capital expenditure and working capital requirements. As regards bank finance for working capital, assessee filed copy of sanction letter from SBI which by a specific clause prohibited the assessee from using such funds for investments in any shares other than normal trade credit. Assessee also filed cash flow statement for the two years including the relevant previous year to substantiate its contention that investments were made out of funds generated through sale of fixed assets and properties and profits and gains earned. Assessee also contented that there was significant reduction in borrowings in impugned previous year and hence no borrowed funds were used for the purpose of making investments. 14. Learned AO was of the opinion that borrowed funds were employed for business as well as investments and interest relating to the borrowings utilized for investments in shares had to be disallowed under s. 14A of the Act. Findi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rebutted. No defects have been pointed either in the cash flow statement or in the books of the assessee which could prove that any borrowed funds were used for making investment. Assessee could substantiate that its borrowings in fact had gone down during the impugned previous year. We find that the intermingling of assessee's own funds and loan funds was only an assumption taken by the AO without going into the records submitted by the assessee. As for the decision of Co-ordinate Bench of this Tribunal in Dakshesh S. Shah's case, AO had noticed that interest paid was on debit balance resulting from withdrawals. which could be linked to investments in shares. As for the decision of Calcutta Bench in S.G. Investments Industries' case, interest was relatable to investments in shares for earning exempt dividend income. Here, on the other hand, assessee has been able to establish clearly that none of its loan funds were used for the purpose of such investments. For invoking s. 14A the first condition is that expenditure should be incurred by the assessee in relation to such income which does not form part of the total income. As long as no such expenditure is involved, in our opini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd would provide additional funds to M/s PGL as and when required. M/s PGL issued 5,00,000 equity shares also to the financial institutions, on which there was an undertaking by the assessee to buy back at Rs. 10 per share or at issue price + 21 per cent interest after deducting gross dividend, whichever was higher. Said M/s PGL continuously made losses due to various reasons on account of severe competition, defects in raw materials supplied etc. and was referred to BIFR. By the end of financial year 1998-99, the accumulated losses were much more than the share capital resulting in a negative net worth of 1,610.97 lacs. Promoters viz., assessee and M/s VIL, therefore, decided to divest its holdings in M/s PGL and advertised in newspapers for this. Nevertheless, due to the commitment with financial institutions and guarantees given, promoters could not sell their shareholding without the written permission of financial institutions. Financial institutions after a series of discussions agreed on a settlement and for meeting the financial needs arising out of such settlement, a rights issue of 1,91,53,800 equity shares for cash at par was made in March, 1999 of which equity shares nu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase cost of such shares. According to him net worth of M/s PGL being heavily in the negative, assessee could not have paid so much amount for acquiring shares in that company. In the result, he disallowed both the claim of short-term capital loss as well as long-term capital loss. 23. Before the learned CIT(A), assessee submitted that the promoters i.e. assessee and as well M/s VIL were bound to make good short-term crunches in resources of M/s PGL as per agreement with financing institutions and they could not sell their holdings in M/s PGL, without prior permission from financial institutions. According to the assessee promoters were also duty-bound to invest funds for completion of the project and obliged to ensure due repayment of loans taken by M/s PGL. According to assessee, the one-time settlement with the financial institutions was unavoidable so as to avoid future losses in a continuously loss making venture and it was left with no option but to infuse additional funds in the form of equity participation in M/s PGL through a rights issue in March, 99. The crux of its submission was that it had to subscribe to the rights issue at the face value of Rs. 10 per share de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such irrecoverable loans as business loss or bad debts. Therefore, he considered the sum of Rs. 540 lacs introduced by M/s ZES into PGL as part and parcel of the sale consideration, received for selling 1,69,89,560 equity shares of PGL to M/s ZES. In the light of this finding, learned CIT(A) reworked the short-term and long-term capital loss of the assessee as under and directed the AO to compute accordingly: "(a) Apportionment of Rs. 540 lakhs received from M/s ZES Rs. Appellant company 3,00,10,273 Voltas International Ltd. 1,02,50,000 Dues of SBI 1,37,39,727 ----------- 54,000,000 ----------- (b) Apportionment of assessee's share of Rs. 3,00,10,273 between long-term and short-term No. of shares % of sale Apportionment of sale consideration (Rs.) Long-term 54,96,520 32.35 97,08,323 Short-term 1,14,93,040 67.65 2,03,01,950 ----------- ------ ----------- 16,989,560 100.00 30,01 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , though as per earlier commitments with them, it was to buy the shares at Rs. 10 per share plus interest. Further according to the learned counsel, the sum of Rs. 540 lacs was infused by M/s ZES into M/s PGL, as a part of the MoU whereby, such funds were to be used for repayment of liabilities of M/s PGL which included those to SBI as well as the promoters including the assessee. It was stressed by the learned counsel that even after such infusion of funds, the net worth of M/s PGL continued to be heavily on the negative side and assessee by getting back the amounts loaned by it to M/s PGL was not effectively receiving any benefits whatsoever, On the other hand, according to him, it incurred loss of interest. Therefore, it was submitted that, considering the funds used by M/s PGL for repayment of its liabilities as a part of consideration for transfer of shares was gross injustice. According to him, the learned CIT(A) after concluding that these were not paper transactions ought not have held that such amount of Rs. 540 lacs was also a part of the sale consideration for transfer of shares. He specifically brought to our attention paper book page No. 4.15 which was a letter of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect for taking the decision for transferring the shares, it would not change the character of the transaction. 28. We have verified the orders and heard the rival contentions. We have also gone through the loan agreement dt. 18th March, 1991 entered by M/s PGL with financial institutions the three commitments dt. 4th June, 1992 given by the promoters to the financial institutions (for buy back of shares, non-transfer of its holdings and infusion of further funds) vide paper book pp. 4.89 to 4.98, and also the MoU entered on 10th Sept., 1999 by assessee and M/s VIL with M/s ZES. The undisputed facts emanating out of the history of the case mentioned in the preceding paras and the above records are as follows: (i) The promoters of M/s PGL were assessee and M/s VIL. (ii) Assessee had acquired equity shares of M/s PGL in various years starting from financial year 1990-91 to financial year 1999-2000 as mentioned at para 20 above and the total number of shares so acquired came to 1,69,89,560. (iii) Out of the above, apart from 4,900 shares acquired in financial year 1994-95 for Rs. 1,23,250; 4,13,160 shares acquired in financial year 1993-94 for Rs 1,03,81,000; 62,200 shares ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 329.48 789.15 (322.45) -------------------------------------------------------------- 1996-97 957.26 1,060.35 (103.09) 899.83 (599.03) -------------------------------------------------------------- 1997-98 957.26 1,926.41 (969.15) 476.72 (866.02) -------------------------------------------------------------- 1998-99 957.26 2,568.23 (1,610.97) 226.78 (641.82) -------------------------------------------------------------- A cursory look to the above Table would clearly show that the operation of M/s PGL was going more and more into the red with the passing of every year except for two intermediate years 1993-94 and 1994-95. To top this, M/s PGL was a company which was referred to BIFR Any prudent promoter would in such circumstances, look for an exit route. No doubt, assessee's assertion that finding a suitor for M/s PGL was very difficult has to be accepted on the face of above facts. That assessee was in such circumstances constrained to enter into a one-time settlement with financial institutions cannot be doubted. Though the financial institutions exercised its option to sell 5,00,000 shares of M/s PGL held by it, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the ZES was examined by the AO of M/s ZES in relation to these transactions and in his report, it was clearly stated that the sum of Rs. 540 lacs paid to M/s Voltas Ltd. was by way of discharging the liability of M/s PGL. It was not anywhere stated that it was a part of the sale consideration received for selling the equity shares. Therefore, we have no hesitation to set aside the order of learned CIT(A) and direct the AO to accept the long-term and short-term capital loss as computed by the assessee. 30. In the result, ground No. 4 of the assessee stands allowed. 31. Consequentially, assessee's appeal is partly allowed. ITA No. 2415/Mum/2005 (Department appeal-Asst. yr. 2000-01-Assessee is M/s Voltas Ltd.) 32. This is a cross-appeal of the Revenue for asst. yr. 2000-01. 33. Ground No. 1 concerns disallowance of Rs. 41,03,08,691 made on account of compensation paid under VRS which disallowance was deleted by learned CIT(A). 34. Short facts are that assessee had claimed VRS compensation of Rs. 41,03,08,691 paid during the relevant previous year to its employees as revenue expenditure. This was disallowed by the AO since according to him, assessee had treated it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e capital losses as claimed by the assessee are as under: (a) Details of shares acquired by assessee in M/s PGL -------------------------------------- Date of Number of Cost of purchase shares purchase (Rs.) -------------------------------------- 22-3-1991 2,75,000 27,50,000 -------------------------------------- 22-6-1992 6,23,500 62,35,000 -------------------------------------- 30-12-1992 2,10,500 20,15,000 -------------------------------------- 18-6-1993 3,10,000 31,00,000 -------------------------------------- 1-1-1996 14,10,000 1,41,00,000 -------------------------------------- 30-7-1999 40,67,300 4,06,73,000 -------------------------------------- Total 68,87,300 6,88,73,000 -------------------------------------- (b) Work out of long-term and short-term capital loss on transfer of the above shares to M/s ZES at nominal rate of Re. 1 (a) Long-term capital loss: ------------------------------------------------------- Date Cost (Rs.) Cost of index Index cost ------------------------------------------------------- 22-3-1991 27,50,000 182 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. ITA No. 2730/Mum/2005 (Departmental appeal-Asst. yr. 2000-01-Assessee is Voltas International Ltd.) 44. This is a cross-appeal filed by the Revenue and the sole grievance of the Revenue is that assessee was allowed capital loss and short-term capital loss by the learned CIT(A) to the extent of Rs. 4,05,34,082 and Rs. 3,46,19,350 respectively, though the AO had disallowed the claim of the assessee. 45. The facts relating to this ground is same as for the sole ground raised by the assessee in its appeal vide ITA No. 2104/Mum/2005 for the same assessment year. We have already held in assessee's appeal that assessee was entitled to claim long-term capital loss and short-term capital loss by taking the sale consideration of total quantity of shares at Re. 1 as returned by the assessee. In the result, the ground raised by the Revenue fails. Consequently, appeal of the Revenue is dismissed. ITA No. 2103/Mum/2005 (Assessee's appeal-Asst. yr. 2001-02-Assessee is Voltas Ltd.) 46. Vide its ground No. 1, assessee is aggrieved that service charges realised for providing various services under composite agreements relating to the commercial premises let out by it was held ..... X X X X Extracts X X X X X X X X Extracts X X X X
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