TMI Blog2010 (1) TMI 908X X X X Extracts X X X X X X X X Extracts X X X X ..... evy of interest u/s 220(2) is not correct on the tax arising from enhancement of the Book Profits. The appeal of the assessee on this issue is dismissed. Deduction u/s 35D / 35DD - expenses incurred towards increase in authorized share capital in connection with substantial expansion of assessee's business. - held that:- Allowability of relief u/s 35DD has been made for the first time before the CIT(A). The AO has not been given an opportunity to examine the matter. - matter restored before AO. Expenditure on De-merger u/s 35DD - held that:- all the particulars of expenses regarding demerger were not considered by the AO. Further, the Demerger has taken place with effect from 1.4.2001. As per sec 35DD, 1/5th of the expenses are allowable in that year and 4 successive Assessment Years. It is not clear whether the expenses were claimed in the earlier years and if so the result thereof. - matter restored before AO. Enhanced rate of depreciation on vehicles - 20% or 50% - commercial vehicles - held that:- it is not necessary for the vehicle to be used for commercial purposes for claiming higher rate of depreciation. In fact cabs have been excluded from the definition of commercial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmitting deduction of such belated payments in the computation of business income in case such payments are made by an assessee before the due date in its case for filing of return of income u/s 139(1). 5. It is the contention of the revenue that the relaxation brought in by the Finance Act 2003 to u/s 43B, applies only to the employer's contribution but not to the employees' contribution recovered by the assessee employer from the salaries of the employees. Without going into the various arguments, we find that this issue is covered in favour of the assessee by the decision of the High Court of PandH in the case of CIT vs Lakhani Rubber Works (326 ITR 415) wherein following the decision of the Apex Court in the case of CIT vs Alom Extrusions Ltd. (319 ITR 306), the High Court has held that both the Employer's and the employees' contribution as well as other incidental charges cannot be disallowed u/s 43B, if paid before the due date of filing of the return u/s 139(1). We find similar view has been taken by the Delhi High Court in the case of CIT vs P.M. Electronics Ltd. (313 ITR 161). Respectfully following the above decisions we allow the appeal of the assessee with the direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .88 Crores is the capital of assessee and the assessee has not used the money lying in the Escrow account for purpose of business. The AO observed that the amount in the Escrow account is capital of the assessee and therefore the increased liability consequent to the devaluation also remained the same in nature and therefore the same is not a revenue expenses. In this regard the AO relied on the decision of Supreme Court in the case of Sutlej Cotton Mills Ltd vs CIT reported in 116 ITR 1 wherein the Supreme Court has gone into all aspects of the matter and laid down the test for determining whether the loss caused on account of devaluation is a revenue loss or a capital loss in the following words: "The law may, therefore now be taken to be well settled that where profit or loss arises to an assessee on account of appreciation or depreciation in the value of foreign currency held by it, on conversion into another currency such profit or loss would ordinarily be trading profit or loss if the foreign currency is held by the assessee on revenue account or as a trading asset or as part of circulating capital embarked in the business. But if on the other hand the foreign currency is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 220(2) of Rs.43,600 on the additions made to Minimum Alternate Tax (MAT) u/s 115JB of the Act. 13. On appeal the Learned CIT(A) held that "Interest u/s 220(2) is levied on the demand raised and notified as per section 156 of the IT Act an which is not paid within the period limited under sub section (i) of section 220(1). In view of the express provisions of the Act, I do not see any reason which calls for my intervention in the imposition of interest u/s 220(2) of the IT Act. This ground is, therefore, decided against the appellant." 14. Aggrieved the assessee is on appeal before us. Levy of interest u/s 220(2) is for default in payment of tax demanded within the time permitted. Once the demand is made, whether be in respect of income determined under normal computation or book profits, and assessee fails to pay the same within time permitted, he is treated as an assessee in default and interest u/s 220(2) is levied. Interest u/s 220(2) starts only after the demand is made and the assessee does not pay the amount within the permitted time. We therefore find no merit in the claim of the assessee that levy of interest u/s 220(2) is not correct on the tax arising from enha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to substantive expansion of appellant company. The appellant company had incurred expenses of Rs.16,78,025 towards stamp duty and ROC filing fees for increase in authorized share capital in connection with the demerger/takeover of training division being a substantive expansion. (b) The expenses were incurred in respect of increase in authorised share capital in connection of takeover of training division from Hexaware Technologies Limited which is an extension of its industrial undertaking i.e. an undertaking providing IT Education and training which is in itself a separate industry. Therefore the appellant first claimed deduction of Rs.335,605 for AY 2002-03, being 2/5th of stamp duty and ROC fees of Rs.16,78,025/- as per the provisions of section 35D of the Act. The assessment year under consideration is the third year in which the appellant has claimed deduction for 1/5th of such expenses. (c) That the fact of such expenses being claimed was disclosed in the following documents filed along with the return of income for AY 2002-03, AY 2003-04 and AY 2004-05. 20. Further the Assessee has contended as under: "Section 35D provided for deduction of specified expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng up a new industrial unit. In the case of the appellant, the authorized share capital of the appellant company was increased after incorporation of the company and after commencement of the business of the company. The takeover of the training and education business of Hexaware Ltd cannot be said to be extension of industrial undertaking or setting up a new industrial unit. Therefore the said expenditure have been rightly disallowed u/s 35D (2)(c) of the Act. The appellant has claimed that alternatively the said expenses of Rs.16,78,025/- be allowed u/s 35DD since the expenses have been incurred wholly and exclusively for the purpose of demerger of training division of Hehaware Ltd into the appellant company. Since these expenses for increase in authorized share capital has been incurred wholly and exclusively for the purpose of demerger of training division of Hexaware Ltd into the appellant company, the same in my view should be allowed as deduction u/s 35DD. Appellant therefore gets relief AO shall recompute the income accordingly." 22. Aggrieved the Revenue is on appeal before us. 23. We heard both the Parties. Allowability of relief u/s 35DD has been made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant claimed deduction of Rs.376,39,137 u/s 35DD for AY 2002-03 being 1/5th of the said expenses incurred during previous year 2001-02, The assessment year under consideration is the third year in which the appellant has claimed 1/5th of such expenses. (d) That the fact of such expenses being claimed was disclosed in the following documents filed along with the return of income for AY 2002-03,AY 2003-04 and AY 2004- 05. Computation of taxable income as "Deductions u/s 35DD 1/5th of aggregate expenses of Rs.18,81,95,686 wholly and exclusively in connection with demerger. In a statement showing computation of deduction u/s 35DD was annexed to return of income. and that during the assessment proceedings that appellant was vide questionnaire dated 1.12.2006, called upon to explain the deduction claimed u/s 35DD and vide letter dated 11.12.2006, asked to furnish the details and supporting in respect of the demerger expenses in response to which the explanation as given above was given to the Learned ACIT vide letter dated 19.12.2006. The appellant has also furnished copies of the order of demerger and other documents. But certain vouchers regarding expenses could not be furni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case it is evident that genuine hardship was faced by the appellant company which was prevented by sufficient reason beyond its control to submit the bills vouchers relating to these demerger expenses and hence the expenses should not be disallowed on account of liability to furnish the necessary evidences on account of force majure. Since the expenditure is corroborated by circumstantial evidence of demerger scheme approved by the Honourable High Court. I accept the argument of the appellant that the disallowance of deduction u/s 35DD of Rs.376,39,137/- being 15th of the aggregate expense o Rs.18,81,95,686/- is not warranted. I accordingly allow ground no 2 and delete the addition of Rs.376,39,137/- to the total income." 28. Aggrieved the revenue is on appeal before us. We find that all the particulars of expenses regarding demerger were not considered by the AO. Further, the Demerger has taken place with effect from 1.4.2001. As per sec 35DD, 1/5th of the expenses are allowable in that year and 4 successive Assessment Years. It is not clear whether the expenses were claimed in the earlier years and if so the result thereof. We feel the matter requires to go back to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correctly claimed. 32. The Learned CIT(A) allowed the claim of the assessee for depreciation at 50% observing as under: "I am of the view that depreciation on motor cars has been rightly claimed @ 50% as per the provision of the depreciation Table contained in appendix I to the I.T Rules 1962 and therefore the same should be allowed. Thus this ground of appeal is allowed to the appellant." 33. Aggrieved the revenue is on appeal. The provisions of the I.T Rules for granting higher depreciation in respect of vehicles acquired after 1.4.2001 and put to use before 1.4.2002. Even though the classification reads as "new Commercial vehicles", under Note 6 to the IT Rules, it has been clarified that Commercial vehicles will include Light motor vehicles but will not include motor cab/maxi cab. This would show that it is not necessary for the vehicle to be used for commercial purposes for claiming higher rate of depreciation. In fact cabs have been excluded from the definition of commercial vehicle, as they are dealt with separately. The Learned CIT(A) was therefore correct in upholding the claim of the Assessee for depreciation @ 50% in respect of motor vehicles acquired after 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad) has in fact considered the earlier decision of the Madras High Court in the case of CIT vs Micromax Systems P. Ltd. (2005) 277 ITR 409(Mad) and South India Surgical Co. Ltd vs ACIT (2006)287 ITR 62(Mad) to come to its findings. Further coming to the merits of the claim of the appellant company the debtors were outstanding for almost 4.5 years and the appellant company had taken reasonable steps for recovering the debts from its franchisee by forming a task force and had even succeeded in recovering substantial amount of the debts from the franchisee save and except an amount of Rs.17,213,127/- the task force could not recover from these centres aggregating to despite their best efforts. The arguments that the amount of debts due from each of these franchisee were too small majority of them were below 1 lakh) to take any legal actions considering the cost benefit analysis also appears reasonable. These debts in the opinion of the management were not recoverable inspite of the best efforts made for collection of the same.As a consequence the se defaulting centres were terminated and resultantly in the asst. year 2004-05 the outstanding amount of Rs.17,213,127/- were written o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of various heads of expenditure. The AO asked the assessee to furnish the details of various expenses such as miscellaneous expenses. Repair and maintenance expenses. Travelling expense legal and professions expenses education training expenses and advertising and publication expenses centre operation expenses course execution expenses etc. However no details of any expenditure were filed. As the assessee was unable to furnish the necessary evidences therefore an adhoc disallowance of Rs.30,00,000 was made to the total income of the assessee company. 40. Before the Learned CIT(A) the assessee has argued that the following expenses were incurred during the previous year. Miscellaneous expenses Rs.297,18,162/- Repairs and Maintenance expenses Rs.216,77,311/- Travelling expenses Rs.471,18,827/- Legal and professional expenses Rs.27994,122/- Education Training expenses and course material Rs.85,487,561/- Advertisement and publication expenses Rs.11,45210 Centre operation expenses Rs.526,247,608/- Course execution expenses Rs.175,680,514/- and cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds in Mumbai on 26th July 2005.In view of the above, the appellant submitted that the above expenses were genuinely incurred wholly and exclusively for the purposes of the appellant companies business and therefore the same should not be disallowed. 43. The CIT(A) allowed the assessee's claim against the adhoc disallowance observing as under: "The fact that these expenses were incurred during the previous year by the appellant company of the purpose of its' business is supported by the Financial Statements of the appellant company for financial year ended 31.3.2004, which have been statutorily audited by a Chartered Accountant as per the Companies Act wherein these expenses along with the related bills and vouchers were properly vouched, verified and audited. Further this fact is also authenticated by the Tax Audit report issued by a Chartered Accountant u/s 44AB if the Income Tax Act. Other documents evidencing the expenses incurred like bills/invoices etc., could not be submitted since the same were not available as they were lost in the floods on account of unprecedented heavy rains that occurred in Mumbai on 26th July 2005, the fact of which is substantiated by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liabilities but are provisions made on a careful estimate of the realizable value of the assets. Thus there cannot be any addition on account of provision for doubtful debts and advances. 46. The AO did not accept the plea of the assessee and held that provision for bad debt is in the nature of contingency made in the accounts of the assessee. The AO thus added to the book profit u/s 115JB of the act the provision for doubtful debt of Rs.5,95,24,304/- 47. On appeal the CIT(A) allowed the Assessee's claim observing as under: "In my view the doubtful debts and advances for which the provisions have been made are not liabilities of the appellant company. They are the assets of the companies. These provisions for doubtful debts and advances are made on a reasonable estimate of the realizable value of the assets. These provisions are not for any liability of the appellant company. Thus, there is no question of making any addition on account of provision for doubtful debts and advances to the net profits as per profit and loss account while computing profit under section 115JB. This contention of the appellant is supported by the decision in the following cases: 1. Usha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that this issue of allowing deduction for exports while computing the Book profits, should be based on the Book profits and not on the relief u/s 80HHC computed under the normal provisions of the Act has been upheld by the Apex Court in the case of Ajanta Pharma Ltd vs CIT 327 ITR 305 (SC). Respectfully following the decision of the Apex Court in the case of Ajanta Pharma Ltd (supra), we dismiss the revenue's appeal on this issue. 52. The last ground in the revenue's appeal is against CIT(A) in allowing deduction of " provision of Wealth Tax" while computing Book Profit u/s 115JB. The Assessee while computing the Book profits added back provision for Income tax but not provision for wealth tax Rs.81,024/- to the Net Profit as per profit and loss account of the appellant while computing Book Profits u/s 115JB of the Act. AO added back Rs.81,024 to the book profit u/s 115JB. 53. On appeal the CIT(A) allowed the Assessee's appeal observing as under: As discussed in ground 9 above, only 13 items of additions and deductions as specified in the explanation to section 115JB(2) should be adjusted in Book Profits u/s 115JB. Clause (a) of Explanation to section 115JB (2) provide ..... X X X X Extracts X X X X X X X X Extracts X X X X
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