TMI Blog2009 (7) TMI 912X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 147 was legal, not based on change of opinion and not barred by intimation. ( b )The learned CIT(A) has erred in confirming disallowance of Rs. 34.57 crores under section 36(1)( viii ) on the ground that although reserve of Rs. 36 crores was created from profit during the year, the assessee has simultaneously withdrawn Rs. 257.05 from reserves created prior to 1-4-1997 resulting in not making reserves during the year. ( c )The learned CIT(A) has erred in holding the contention of the Addl. Commissioner of Income-tax that following income have been earned by the assessee-company from business of long-term and accordingly deduction under section 36(1)( viii ) is not allowable : Name of Income Amount (Rs. in lakhs) Lease Rentals 1176.99 Consultancy Management and Service Charges 35.55 Interest-tax recovered from borrowers 2016.90 ( d )The learned CIT(A) has wrongly confirmed disallowance of deduction of Rs. 2.65 crores under section 36(1)( viia )( c ). ( e )The CIT(A) has wrongly confirmed levy of interest under section 234B of the Income-tax Act, 1961. ( f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of opinion and not barred by intimation. ( b )The learned CIT(A) has erred in holding the contention of the Addl. Commissioner of Income-tax that following income have been earned by the assessee-company from business of long-term and accordingly deduction under section 36(1)( viii ) is not allowable : Name of Income Amount (Rs. In lakhs) Lease Rentals 1176.88 Consultancy Management and Service Charges 338.57 Interest-tax recovered from borrowers 2358.23 ( c )The learned CIT(A) has wrongly confirmed allowance of deduction under section 36(1)( viia )( c ) at Rs. 1,22,76,000 as against Rs. 10,77,00,000. ( d )The learned CIT(A) has erred in rejecting the contention of the appellant that deduction under section 36(1)( viia )( c ) and deduction under section 36(1)( viii ) are both dependent on each other. If one deduction is reduced the second will automatically be reduced. ( e )The learned CIT(A) erred in not giving an opportunity of the appellate company for making good the shortfall in the provision for bad and doubtful debt as required under section 36(1)( viia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erve under section 36(1)( viii ) only in respect of lease rentals. No permission has been granted in respect of assessee s claim of deduction under section 36(1)( viia )( c ) in respect of consultancy, management of service charges and interest tax recovered from borrowers. 8. In the assessment year 1999-2000, the Committee of Disputes has accorded permission to the assessee to pursue the following issues before the Tribunal: ( i )matter relating to deduction of lease rentals under section 36(1)( viii ), only declining the permission in respect of consultancy, management of service charges and interest tax recovered from borrowers. ( ii )Not allowing deduction under section 36(1)( viia )( c ). ( iii )Rejecting the assessee s contention that deduction under section 36(1)( viia )( c ) and under section 36(1)( viii ) are dependent on each other. ( iv )Not giving the opportunity to the assessee for making good shortfall in the provision for bad and doubtful debt as required under section 36(1)( viia ) and reserve under section 36(1)( viii ) of the Act. ( v )No permission was accorded in respect of Assessing Officer s action in reopening the assessment under section 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do not find any force in this ground challenging the reopening of the assessment made under section 147 of the Act. Thus, this ground raised by the assessee fails for both the assessment years 1997-98 and 1998-99. Be it mentioned here that with regard to this issue challenging the validity of the re-assessment under section 147 of the Act for the assessment year 1999-2000, the COD has not accorded any permission to the assessee to pursue this ground before the Tribunal. 13. The next issue in respect of which permission has been accorded by COD in the assessment year 1997-98 is disallowance of assessee s claim made under section 36(1)( viii ) on the ground that although reserve of Rs. 36 crores was created from the profits during the year, the assessee has simultaneously withdrawn from reserves created prior to 1-4-1997 resulting in not making reserves during the year. 14. In the course of hearing of this appeal, the ld. Counsel for the assessee submitted that the assessee has withdrawn this ground by virtue AAR s directions given consequent to file of an application by the assessee with AAR. He, further, pointed out that this issue has been decided by the Hon ble AAR in fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1999-2000 is to be decided accordingly. 21. The AAR in the case pertinent to the assessment year 1997-98 has taken a view that mere debiting in the appropriation account by the assessee would not disentitle the assessee from claiming deduction when the same is permissible to it under the provisions of section 36(1)( viia )( c ) of the Act. An identical view was taken by the ITAT, Delhi in the case of Power Finance Corpn. Ltd. v. Jt. CIT [2006] 10 SOT 190 . 22. In the light of the submission made above and in the light of the decision of AAR as well as the decision of Tribunal in the case of Power Finance Corpn. Ltd. ( supra ), we decide this issue in the light of the direction given by the AAR in assessment year 1997-98, which will be applicable in assessment years 1998-99 and 1999-2000 also. 23. The next issue raised in the appeal for the assessment years 1998-99 and 1999-2000 is with regard to the assessee s contention that deduction under section 36(1)( viia )( c ) and deduction under section 36(1)( viii ) are both dependent on each other, and if one deduction is reduced the second will automatically be increased. 24. This issue has been discussed and de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant. I find the contention of the appellant not convincing and acceptable. The appellant also had not perused this ground during the appellate proceedings. Hence this ground of the appeal is dismissed." 26. Before us, the ld. Counsel for the assessee has submitted that section 36(1)( viia )( c ) provides for deduction of an amount not exceeding 5 per cent of the total income before making any deduction under this clause and under Chapter VI-A of the Act, and section 36(1)( viii ) provides for deduction for an amount not exceeding 40 per cent of the profit before making any deduction under this clause. He, therefore, submitted that the deduction under each clause i.e. 36(1)( viia )( c ) and 36(1)( viii ) should be computed separately without giving effect to the other deduction as it is clearly provided in the section that deduction under each clause should be computed with reference to the total income before giving effect to the deduction under that relevant clause. He submitted that it was not meant that we should compute the deduction after deducting the deduction under the other clause as done by the Assessing Officer. 27. The ld. Departmental representative, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, deduction under section 36(1)( viii ) in respect of special reserve created and maintained by the assessee, who is a financial corporation engaged in providing long-term finance for industry and agricultural development etc. as referred to in section 36(1)( viii ), is to be computed with reference to the profits derived from such business of providing long-term finance etc. (computed under the head "profits and gains of business or profession" before making any deduction under this clause). In other words, for the purpose of computing profit with reference to which the deduction allowable under section 36(1)( viii ) is to be computed, all other deduction available under the head "profits or gains" of business and profession are to be considered except the deduction available under section 36(1)( viii ) of the Act. As a natural corollary, the deduction available to the assessee under section 36(1)( viia )( c ) has to be reduced from the profits derived from such business of providing long term finance computed under the head "profits and gains of business or profession" for the purpose of computing deduction available under section 36(1)( viii ) of the Act. In this connection, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to the appellate company for making good the shortfall in the provision for bad and doubtful debts required under section 36(1)( viia ) and reserve under section 36(1)( viii ) of the Income-tax Act, 1961. I have carefully considered the submission of the appellant. There was enough time and opportunity for the appellant during the course of assessment proceeding to rectify any mistake which the appellant intended to do so. Therefore, the appellant s appeal on this ground is untenable and hence dismissed." 32. In respect of this ground, the assessee has merely requested to consider the submission as made before the Ld. CIT(A). 33. The Ld. DR, on the other hand, supported the order of the authorities below. 34. After considering the totality of the facts and circumstances of the case, we find that the assessee has not made good the shortfall in the provision for bad and doubtful debts required under section 36(1)( viia )( c ) and provision for reserve under section 36(1)( viii ) of the Act by making necessary provisions in the accounts. We, therefore, do not find any irregularity on the part of the Assessing Officer as well as the CIT(A) in rejecting the assessee s c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... smissing the assessee s contention that the assessee should be allowed an opportunity to make good a shortfall in the provision for bad and doubtful debt as required under section 36(1)( viia ) and reserve under section 36(1)( viii ) of the Act. This issue is identical to the issue raised in the assessment years 1997-98, 1998-99 and 1999-2000, and in light of our decision in those years, this ground stands rejected. 41. In the assessment year 2004-05, one of the grounds with regard to the assessee s claim of deduction under section 36(1)( viii ) towards swapping premium has been withdrawn by the assessee as per direction of the AAR consequent to the filing of an application before the AAR by the assessee. Further, the assessee has submitted that this ground has been decided by the AAR in favour of the assessee. We, therefore, reject this ground as withdrawn. 42. The other item in respect of deduction under section 36(1)( viii ) is claimed are handling charges, consultancy, processing and service charges, in respect of which no approval has been granted by the COD, and hence, they are rejected. 43. Next ground in the assessment year 2004-05 is with regard to the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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