TMI Blog2009 (4) TMI 529X X X X Extracts X X X X X X X X Extracts X X X X ..... of depreciation of Rs. 1,00,11,600 made by the JCIT is contrary to law and the facts of the case. 2. On the facts brought on record, the CIT(A) ought to have allowed the claim of depreciation of Rs. 1,00,11,600 as all the requirements for claim of depreciation were satisfied. 3. The entire assessment under section 148 read with section 143(3) of February 2000 is void ab initio being violative of principles of natural justice as the report on the basis of which the notice under section 148 was issued, had no relevance with regard to appellant s claim of depreciation and the Assessing Officer had not granted an opportunity to cross-examine certain parties whose statements were relied upon in the assessment order." 3. Briefly stated, the facts are that regarding the claim of depreciation by the assessee of Rs. 100,11,600 in respect of 486 Industrial Gas Cylinders, it is noted by the Assessing Officer on page No. 1 of the re-assessment order under sections 148/143(3) that the cylinders were supplied from M/s. Thriuvallur Multipurpose Workers Industrial Co-operative Society Ltd. for short (TMWICSL) vide invoice No. 2922 dated 30-9-1994 and leased to M/s. Grounders Rice Expo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r that survey under section133A was undertaken by the then ACIT, Central Circle-III at the premises of M/s. GREPL to find out whether the assets said to have been sold by M/s. TMWICSL did exist in the factory premises of M/s. GREPL and as per the result of this survey, the factory did not have so many numbers of cylinders and only 5 oxygen cylinders without any marks or identification were found. On the basis of these facts, it was held by the Assessing Officer that M/s. GREPL and M/s. TMWICSL were used by Shri Rajaratnam and on this basis, it was held by the Assessing Officer that the depreciation claimed by the assessee cannot be allowed. He disallowed the claim of the assessee regarding depreciation. Being aggrieved, the assessee carried the matter in appeal before ld CIT(A) but without success and now the assessee is in appeal before us. 4. It is submitted by the ld AR of the assessee that on page No. 36 of the paper book is a letter dated 29-11-1999 said to be written by Shri C. Muthuswami to the DCIT, Central Circle-III, Chennai and as per which, the transaction of M/s. GREPL with TFCI i.e., the assessee and two other concerns are financial loan transactions. It is also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer behind the back of the assessee were not confronted with the assessee in a proper manner before completing the assessment but we are of the considered opinion that it is an irregularity in the assessment order not an illegality. We feel that in the interest of justice, this matter should go back to the file of the Assessing Officer for a fresh decision after allowing the assessee a reasonable opportunity to rebut these evidences which are collected by him behind the back of the assessee and if the assessee wants cross-examination of any concerned party, the same should also be provided to the assessee if it is relevant. We, therefore, set aside the order of the ld CIT(A) and restore this matter back to the file of the Assessing Officer for afresh decision as per above discussion after providing adequate opportunity of being heard to the assessee. 7. In the result, the appeal of the assessee stands partly allowed for statistical purposes. 8. Now, we take up the appeal of the assessee for assessment year 1997-98 i.e., in ITA No. 2612/Delhi/2002. 9. Ground Nos. 1, 2 and 3 are inter-connected which read as under : "1. Ld CIT(A) in holding that dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ieved, the assessee carried the matter in appeal before ld. CIT(A). 11. It was held by ld. CIT(A) that the Assessing Officer had not correctly computed deduction under section 36(1)( viii ) and 36(1)( viia ). It is also held by the ld. CIT(A) that deduction under section 36(1)( viii ) should be allowed at the rate of 40 per cent of taxable income out of interest on rupee term loan amounting to Rs. 83,64,34,381. He has directed the Assessing Officer that on this amount, the Assessing Officer will determine the profit from business of providing long term finance as computed under the head Profits and Gains of Business or Profession before allowing deduction under clause 36(1)( viii ) of the Income-tax Act, 1961 and on the profits so determined, the assessee will be eligible for deduction at the rate of 40 per cent of such income under section 36(1)( viii ) of the Income-tax Act, 1961. For deduction under section 36(1)( viia ), it is held by him that the same should be allowed at the rate of 5 per cent of total income after deducting the amount of deduction allowable under section 36(1)( viii ). Now, the assessee is in further appeal before us regarding computation of deduction un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rely on this basis that section 36(1)( viii ) comes after section 36(1)( viia ) and for this reason, this deduction should not be reduced from total income. If we go on that basis, then any other deduction which is allowable under any section of the Income-tax Act, 1961 which is coming after section 36(1)( viia ) cannot be reduced from total income such as section 37(1), section 43B etc. This is an absurd proposition. Regarding judgment of Hon ble Patna High Court rendered in the case of Bihar State Financial Corpn. ( supra ), we find that the issue involved in that judgment was regarding deduction allowable to the assessee under section 36(1)( viii ) and it was held in this case by Hon ble Patna High Court that the statutory deduction under section 36(1)( viii ) of the Income-tax Act, 1961 available to the financial corporation providing long term finance for housing should be calculated on the total income before deduction of the amount allowable under section 36(1)( viii ). Computation of deduction allowable under section 36(1)( viii ) is not the subject matter in this case and hence this judgment of Hon ble Patna High Court is not relevant in the case in hand before us. Moreo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m equipment credit scheme, lease rentals, financial charges, dividends, profits on sale of investment, misc. income, interest on deposits, other fees and charges etc. will not fall within the ambit of income derived from long term finance and hence the assessee is not eligible for deduction under section 36(1)( viii ) on account of these incomes. It is further held by Ld. CIT(A) that the only income which will be eligible for deduction under section 36(1)( viii ) is interest on rupee term loan amounting to Rs. 83,64,34,381 which is from the business of long term finance. It is further held by Ld. CIT(A) that on this amount, the Assessing Officer will determine the profits from business of providing long term finance as computed under the head profits gains of business or profession before allowing deduction under section 36(1)( viii ) of the Income-tax Act, 1961 and on the profits so determined, the assessee will be eligible for deduction at the rate of 40 per cent of such income under section 36(1)( viii ) of the Income-tax Act, 1961. Now, the assessee is in further appeal before us. 18. It is the submission of the Ld. AR of the assessee that interest on deposits, interest o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al submissions and perused the material available on record and have gone through the orders of the authorities below. We find that the provisions of section 36(1)( viii ) are relevant for this issue and hence we reproduce the same hereinbelow : "36(1)( viii ) In respect of any special reserve created and maintained by a specified entity, an amount not exceeding twenty per cent of the profits derived from eligible business computed under the head Profits and gains of business or profession (before making any deduction under this clause) carried to such reserve account." 22. From the above, it is seen that for the purpose of allowing deduction under this section, we have to consider profits derived from business of providing long term finance computed under the head profits gains of business or profession". The long term finance is defined under clause ( h ) of Explanation to section 36(1)( viii ) as per which, the long term finance means any loan or advance where the terms under which moneys are loaned or advanced provided for repayment along with interest there on during the period of not less than five years. From the above, it is clear that profits derived from lon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Ltd. amounting to Rs. 2,81,92,080. 7. On the facts and in law the CIT(A) should held that the appellant has acquired the impugned assets and was the owner of the assets for the purpose of deduction under section 32 of the Act and the claim of depreciation should have been allowed." 24. It is submitted by Ld. AR of the assessee that this is now covered in favour of the assessee by the Tribunal decision in assessee s own case for assessment year 1996-97 as per ITA No. 2611/Delhi/2002 dated 12-12-2008. He submitted a copy of the Tribunal decision. It is pointed out that the equipment leased to M/s. Prakash Industries Ltd., were in fact leased out in assessment year 1996-97 and because in that year, the assets were put to use for less than 180 days, 50 per cent depreciation was claimed in that year and balance 50 per cent depreciation is being claimed in the present year i.e., assessment year 1997-98. It is pointed out that in assessment year 1996-97, the claim of the assessee regarding depreciation has been allowed by the Tribunal and hence in the present year also, the claim of the assessee regarding balance depreciation should be allowed. 25. Ld. DR of the revenue supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer has taken the amount of bad debt at Rs. 17 crores against Rs. 17.30 crores originally taken at the time of process of return under section 143(1)( a ) and this has resulted into further disallowance of Rs.30 lakhs and hence the total disallowance has been worked out at Rs. 276,74,370. While working out the excess deduction claimed at Rs. 276,74,370, the Assessing Officer has considered the provision for bad debts for assessment year 1995-96 at Rs. 125 lakhs, for assessment year 1996-97 at Rs. 144,67,125 and for the present assessment year also i.e., assessment year 1997-98 at Rs. 66,07,245. This disallowance of Rs. 276,74,370 has been confirmed by Ld. CIT(A) on the basis that as per the proviso to section 36(1)( vii ) in the case of the assessee to which clause ( viia ) of section 36(1) applies, the amount of deduction relating to write off of bad debt shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debt account made under section 36(1)( viia ). Now, the assessee is in further appeal before us. 29. It is submitted by Ld. AR of the assessee that this issue is now covered in favour of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... New Delhi is null and void since he can not be an Assessing Officer under section 2(7A) of the Income-tax Act, 1961 to make assessment of income." 34. This ground was not pressed by the Ld. AR of the assessee and hence the same is rejected as not pressed. 35. Ground No. 1 of the appeal is general in nature. 36. Ground No. 2 of the appeal which reads as under : "That on the facts and circumstances of the case, the Ld CIT(A) has erred in holding that the amount of Rs. 64,96,000 spent by the assessee company for raising funds for the purpose of business by increasing authorized capital; was a capital expenditure and not an allowable revenue expenditure." 37. Briefly stated, the facts are that it is noted by the Assessing Officer that the assessee has debited Rs. 65,10,340 as filing fees in the P L A/c as compared to Rs. 2220 debited in the last year. The Assessing Officer asked the assessee to file details which are reproduced by the Assessing Officer on page No. 3 of the assessment order. From the same, it is noted by the Assessing Officer that Rs. 64.96 lakhs was paid by the assessee for increase in authorized capital from 100 crores to Rs. 255 crores. The sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 41. Ground Nos. 3 4 of the appeal which read as under : "3. That on the facts and circumstances of the case, the Ld CIT(A) has erred in holding that the loss of Rs. 1,04,27,000 incurred in respect of shares held under the head current investment was a capital loss and not a revenue loss. 4. That on the facts and circumstances of the case, the Ld CIT(A) has erred in holding that the loss of Rs. 1,04,27,000 incurred in respect of shares held under the head current investment was not even a capital loss, though held in an earlier paragraph of the appellate order as a capital loss." 42. Briefly stated, the facts are that it is noted by the Assessing Officer in Para No. 5 of the assessment order that the assessee company has shown Rs. 104.27 lakhs as diminution in the value of investment written off and deducted this amount from the total income. The Assessing Officer asked the assessee to give details and to justify his claim for deduction of this amount in the light of the facts that on sale of investment, profit or loss is assessable under the head capital gains. In reply, it was submitted by the assessee before the Assessing Officer that during this year, shares/units wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ff its investment in these four companies against provision for diminution in the value of investment created in earlier years. It is also submitted that the said provision has been disallowed in earlier years and were offered for taxation in those years and hence again disallowing the same in the present year has resulted into double taxation which is not justified. In this regard, it was pointed out by the Bench that on page No. 15 of the assessment order, the Assessing Officer has started working on the basis of gross total income as computed by the assessee in its return of income filed on 30-10-2000 at Rs. 20,02,98,223 and not on the basis of net profit shown by the assessee in the P L A/c and since this gross total income has been worked out by the assessee in computation of income after deducting this claim of the assessee regarding write off of investment of Rs. 104.27 lakhs, it cannot be said that there is any double addition. In reply, Ld. AR of the assessee had nothing to say. 45. Ld. DR of the revenue supported the orders of the authorities below. 46. We have heard the rival submissions and perused the material available on record and have gone through the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the deduction of the written down value of demolished and discarded furniture in the previous year in which it is actually written off. It is noted by the Assessing Officer that it was brought to the notice of the assessee that section 32(1)( iii ) applies to a business which is related to the generation and distribution of power and hence it will not apply in the case of the assessee company. On pointing out of this provision, the assessee company requested that alternatively, depreciation can be allowed. It was held by the Assessing Officer that no depreciation can be allowed because the said fixed asset has already been discarded and not being used for the purpose of business. It is also submitted that the provision of section 32(1)( iii ) is independent of section 43(6)( c )(1) of the Act. Being aggrieved, the assessee carried the matter in appeal before Ld. CIT(A) but without success and now the assessee is in further appeal before us. 49. It is submitted by the Ld. AR of the assessee that the Assessing Officer has wrongly interpreted the provisions of section 32(1)( iii ) and hence the claim of the assessee should be allowed. 50. Ld. DR of the revenue supported the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are engaged in generation and distribution of power for which depreciation is allowable on the basis of actual cost of the asset and as per clause ( ii ) thereafter, it is specified that depreciation is allowable for the block of assets. In the cases of block of assets, if any asset is sold discarded, or demolished or destroyed during any previous year, then the amount receivable on account of such sale or scrap value, if any, will be reduced from the Written Down Value (WDV) to the extent of WDV after including addition under that block during that year and depreciation is allowable on the WDV after such deduction regarding sale proceeds/scrap value. In the cases of those undertakings, which are engaged in generation and distribution of power, where depreciation is allowable on actual cost of individual asset, clause ( iii ) of section 32(1) takes care of those instances where a building, machinery, plant or furniture is sold, discarded, demolished or destroyed. In the light of these provisions, we are of the considered opinion that clause ( iii ) of section 32(1) is applicable for those undertakings which are engaged in generation and distribution of power and for them, section 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 36(1)( viii ) of the Act. Regarding interest on debentures, the matter has been restored back to the file of the Assessing Officer to examine and verify the period of repayment thereof to find out whether it is for long term or short term as per the provisions of clause ( h ) of Explanation to section 36(1)( viii ). Regarding this aspect as to whether deduction under section 36(1)( viii ) should be reduced from total income for the purpose of computing deduction under section 36(1)( viia ). It has been held in that year that the same is to be reduced from total income and for the remainder income only, deduction under section 36(1)( viia ) should be computed. In the present year also, these issues are decided on similar lines and these grounds of the assessee are partly allowed for statistical purposes as in assessment year 1997-98. 55. Ground No. 8 of the appeal reads as under : "8. That on the facts and circumstances of the case, the Ld CIT(A) has erred in holding that the deduction of Rs. 1,88,75,365 and Rs. 65,64,721 from the claim of bad debts written off was rightly made by the Assessing Officer." 56. Regarding this issue it was agreed by both sides that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment order are wrongly held as not attributable to the business of providing long term finance and has consequently erred in confirming the reduced allowance under section 36(1)( viii ) at Rs. 4,24,63,380 instead of Rs. 5,14,42,224 claimed by the assessee." 64. It was agreed by both sides that this issue is identical to ground Nos. 1 to 5 in assessment year 1997-98 and the same can be decided on similar lines. In assessment year 1997-98, this issue has been decided by us as per Para Nos. 15 and 22 above and it was held that deduction under section 36(1)( viia ) is to be computed after reducing deduction allowable to the assessee under section 36(1)( viii ) from total income. In the present year also, this issue is decided on similar lines. Regarding second aspect as to whether for the purpose of deduction under section 36(1)( viii ), other incomes such as interest on deposits, interest on debentures, lease rentals, legal fees, guarantee commission, appraisal fees, interest on guarantee commission, misc. income, dividend received, profit on sale of investment etc., are eligible or not for deduction under section 36(1)( viii ), it has been held in assessment year 1997-98 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orders of the authorities below and by respectfully following the judgment of the Special Bench of the Tribunal rendered in the case of Daga Capital Management (P.) Ltd. ( supra ), we set aside the order of the CIT(A) on this issue and restore this matter back to the file of the Assessing Officer for a fresh decision in the light of this decision of Special Bench of the Tribunal. The Assessing Officer should recompute the disallowance as per this decision of the Special Bench of the Tribunal but if the disallowance so computed by the Assessing Officer exceeds the amount of disallowance of Rs. 1 lakh made by the Assessing Officer in the impugned assessment order, in that situation, the disallowance to be made by the Assessing Officer should be restricted to Rs. 1 lakh being the disallowance made in the impugned assessment order because the Tribunal has no power to enhance the income. This ground of the assessee is allowed for statistical purposes. 71. In the result, this appeal of the assessee is partly allowed. 72. Now we take up the assessee s appeal for assessment year 2002-03 i.e., in ITA No. 2574/Delhi/2006. 73. Ground No. 1 of the appeal is general in nature. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ures should be considered as income from long term finance. In the present year also, this issue is decided on similar lines. Ground No. 2 of the appeal of the assessee is rejected whereas ground No. 3 is partly allowed for statistical purposes. 76. Ground No. 4 of the appeal reads as under : "4. That on the facts and in the circumstances of the case, the Ld CIT(A) has erred in upholding the disallowance of Rs. 12,000 under section 14A on dividend of Rs. 1,20,000." 77. It was agreed by both sides that this issue is identical to Ground No. 5 in assessment year 2001-02 and can be decided on similar lines. 78. We have heard the rival submissions and perused the material available on record and have gone through the orders of the authorities below and by respectfully following the judgment of the Special Bench of Tribunal rendered in the case of Daga Capital Management (P.) Ltd. ( supra ), we set aside the order of the CIT(A) on this issue and restore this matter back to the file of the Assessing Officer for a fresh decision in the light of this decision of Special Bench of the Tribunal. The Assessing Officer should recompute the disallowance as per this decision of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interfere in the order of Ld CIT(A) on this issue. Regarding the claim of the assessee for allowing deduction under section 35D, we find that the Assessing Officer has given a categorical finding that section 35D is not applicable to the facts of this case and it is noted by the Ld CIT(A) that the assessee has not lead any evidence to rebut the cogent finding of the Assessing Officer and before us also, the assessee could not rebut the cogent finding of the Assessing Officer and hence on this aspect also, we find no reason to interfere in the order of Ld CIT(A). This ground of the assessee is rejected. 81. Ground No. 6 of the appeal reads as under : "6. That on the facts and in the circumstances of the case, the Ld CIT(A) has erred in not directing the Assessing Officer to provide details of interest charged under section 234D." 82. It is submitted by the Ld AR of the assessee that this issue is now covered in favour of the assessee by the decision of Special Bench of the Tribunal rendered in the case of ITO v. Ekta Promoters (P.) Ltd. [2008] 113 ITD 719 (Delhi) wherein it was held that section 234D has been brought on statute book from 1-6-2003 and hence has applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eleted by Ld CIT(A) and against this, the revenue is in appeal as per ground No 1. Regarding ground No. 2, the facts are that it is noted by the Assessing Officer that the interest on Non-Performing Asset (NPA) accrued as on 31-3-1997 aggregated to Rs. 1040.50 lakhs which was not considered by the assessee while finalizing its accounts. It is further noted by the Assessing Officer that in assessment year 1993-94, similar interest income was added by the Assessing Officer which was deleted by the Ld CIT(A) in that year and similar additions were made in subsequent years i.e., assessment years 1994-95 to 1996-97 which were also deleted by Ld CIT(A) in all these four years but the revenue is in appeal before the Tribunal and accordingly on the same lines in this year also, the Assessing Officer made addition of Rs. 1040.50 lakhs on account of interest on NPA which is not accounted for by the assessee. In the present year also, the assessee preferred an appeal before Ld CIT(A) who has deleted this addition in this year also and now the revenue is in appeal against this order of Ld CIT(A) as per ground No. 2. 88. Ld DR of the revenue supported the assessment order whereas Ld AR of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been brought on record before us to show that section 43D and rule 6EA are not applicable regarding advances in question on which interest income has been added by the Assessing Officer. We, therefore, uphold the order of the Ld CIT(A) on these issues. 90. In the result, the appeal of the revenue is dismissed. 91. Now we take up the revenue s appeal for assessment year 2000-01 i.e., in ITA No. 5179/Delhi/2003. 92. The only ground raised by the revenue reads as under : "On the facts and in the circumstances of the case, the Ld CIT(A) has erred in deleting the addition of Rs. 37,16,00,000 representing interest on the non-performing assts approved as on 31-3-1996." 93. It is agreed by both sides that this ground is identical with ground No. 2 of the revenue s appeal in assessment year 1997-98 and can be decided on similar lines. While deciding revenue s appeal in assessment year 1997-98 as per Para No. 89 above, this issue has been decided by us in favour of the assessee and against the revenue. On the same lines, in this year also, this issue is decided in favour of the assessee. This ground of the revenue is dismissed. 94. In the result, this appeal of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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