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2018 (1) TMI 790 - AT - Income TaxAddition made towards prior period expenditure towards interest paid to supplier - allowable busniss expenditure - claim of the assessee that the liability to pay the interest itself accrued only pursuant to the bill dated 3.11.1992 raised by the said supplier and the same was duly paid by the assessee before the end of the previous year ending 31.3.1993 - Held that:- We are informed that the tax rates for domestic companies for both Asst Years 1992-93 and 1993-94 were one and the same ie 45% tax plus surcharge of 15%. Hence there is no loss that could be attributed to the exchequer because of this claim of expenditure by the assessee as the business expediency of the said expenditure and its genuineness had not been doubted by the revenue at any point of time. It is not in dispute that the said payment of interest on delayed payment to supplier is a legitimate business expenditure. See CIT vs Jagatjit Industries Ltd reported in (2010 (9) TMI 58 - DELHI HIGH COURT). In view of these facts, we have no hesitation in directing the ld AO to delete the disallowance made on account of prior period expenses - Decided in favour of assessee Disallowance of interest paid on borrowed funds - assessee had diverted the borrowed funds for non-business purposes - Held that:- We find from the perusal of the balance sheet of the assessee company which is part of the paper book filed before us, that the assessee company is having sufficient own funds in the form of share capital and reserves and surplus to the tune of ₹ 9,02,06,003/- which is higher than the loans taken by the assesse company. Hence the presumption could be drawn in favour of the assessee that the interest free funds were given out of the own funds available with the assessee company. See CIT vs Britannia Industries Ltd [2005 (6) TMI 19 - CALCUTTA High Court]. - Decided in favour of assessee. Disallowing the claim of bad debts written off in respect of debts pertaining to Jute division - Held that:- out of the total debtors of the assessee company in the sum of ₹ 5,92,08,719/- as on 31.3.1993, a sum of ₹ 2,92,65,884/- represents old balances, out of which debts representing ₹ 16,43,829/- had been written off in the books of accounts as bad debt. Hence it clearly proves that the same represents trade debts of the assessee. Since the debt is reflected under sundry debtors, it goes without saying that the income was offered in the earlier years and unrealized portion of the debt is reflected under the head ‘Sundry Debtors’ in the balance sheet. The above note also impliedly proves that the assets of jute division representing sundry debtors had been merged with the sundry debtors of tea division of the assessee company. In view of these facts, we hold that the assessee company had indeed complied with the requirements of section 36(2) of the Act in the instant case and is accordingly entitled for deduction u/s 36(1)(vii) of the Act - Decided in favour of assessee Disallowance towards provision for leave encashment - Held that:- We find that the provisions of section 43B(f) of the Act was introduced in the statute by the Finance Act 2001 with effect from 1.4.2002 (i.e from Asst Year 2002-03 onwards) wherein the claim of deduction towards leave encashment could be allowed only on payment basis. This provision cannot be made applicable for Asst Year 2001-02 which is the year under consideration. Hence the basis of disallowance by applying provisions of section 43B of the Act is incorrect in the instant case. There is no dispute that the assessee had made provision based on rational workings towards provision for leave encashment . Hence the assessee would be entitled for deduction on provision basis by placing reliance on the decision in the case of Bharat Earth Movers Ltd.(2000 (8) TMI 4 - SUPREME Court). - Decided in favour of assessee Disallowing the set off of business loss of packaging division of the assessee with the business income - Held that:- We hold that once the separate profit and loss account of packaging division was filed by the assessee, the same ought to have been examined by the revenue which has not been done in the instant case. Hence in the interest of justice and fairplay, we deem it fit and appropriate to remand this issue to the file of the ld AO with a direction to examine the profit and loss account of packaging division of the assessee company and decide the allowability of loss of packaging division afresh, in accordance with law. The aspect of double addition would have to be addressed by the ld AO while disposing of this set aside assessment. Accordingly, the Ground No. 2 raised by the assessee for Asst Year 2001-02 is allowed for statistical purposes. Non treating the receipt of other income as composite income of the assessee - Held that:- AO ought not to have treated the aforesaid receipts as other income and hence not part of composite income of the assessee merely based on admission of the assessee. Getting into the merits of each item of receipt, we find that the receipt towards sale of tea waste, rent realized and tea claim realized, would be eligible to be forming part of composite income of the assessee based on the decision of this tribunal dated 11.9.2015 supra and by the decision of ld CITA in assessee’s own case for the Asst Year 2009-10. As far as other items of receipts are concerned, no details were furnished by the assessee and no business nexus of those receipts with the tea business were proved by the assessee. Hence we hold that the same would have to be treated separately as income from other sources. For the sake of clarity, we would like to state the incomes forming part of composite income would be sale of tea waste, rent realized and tea claim realized. The other receipts i.e sale of assets and sundry receipts would have to be treated as income from other sources. - Decided partly in favour of assessee
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