TMI Blog2011 (3) TMI 613X X X X Extracts X X X X X X X X Extracts X X X X ..... duced from the book profit u/s.115JB - In the case of Ajanta Pharma Ltd vs CIT (2010 -TMI - 77381 - SUPREME COURT) wherein it was held that In Section 115JB, as in Section 115JA, it has been clearly stated that the relief will be computed under Section 80HHC(3)/(3A), subject to the conditions under sub-clauses (4) and (4A) of that Section - Decided in favor of the assessee Regarding personal expenditure - Assessing Officer asked the assessee to furnish the details of miscellaneous expenses, which could not be complied with - The requisite details of travelling, such as names of persons travelling and purpose of travel etc are on record, and since complete details of expenses, other than ticket expenses, are not placed, an adhoc disallowance of 20% is made towards personal expenses - since there is no dispute about the fact of, evidence of or justification of expenses, the entire amount is allowed in full by the CIT(A) - Appeal is dismissed Regarding remission or cessation of any liability - the bank has not given a clear-cut reply, regarding the nature of remission of liability of Rs. 2,91,36,753 - in the case of CIT v. Chetan Chemical Pvt Ltd cited (2001 -TMI - 11255 - GUJARA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee's own case for the assessment years 1998-99 and 1999-200 on similar facts, wherein, the Tribunal has allowed the deduction of lease rental on this windmill, observing as follows:- "We have carefully considered the rival submissions. The case of the authorities below is that there was no need for the assessee to sell these two windmills because in any case directly or indirectly these windmills were utilized for the purposes of the business of the assessee. As to windmill 250 KW the assessee took it back on lease from WHL. Windmill 500 KW was finally taken on lease by Tapi Energy Product ltd (Tapi) who was a sister concern of the assessee. Tapi was sharing revenue from assessee's sale of electricity to Andhra Pradesh Government. The Revenue has also contended that the series of transactions were entered into between the group concerns with a view to avoid tax liability of the group as a whole. There is certain flaw on the face of this argument in as much as Bank of Madura who purchased windmill 500 KW is not part of the assessee group. Secondly, it is not for the Income-tax authorities to determine as to in what manner the assessee should have conducted his business affairs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of the fact that the deduction u/s. 80HHC computed under clause (a), (b) and (c) of subsection(3) or sub-section 3(A) is Nil an as provided in section 115JB of the Act. 7. So far as this grievance of the Assessing Officer is concerned, relevant materials are like this. In the course of the assessment proceedings, the Assessing officer noticed the profits eligible for deduction under section 80 HHC have been claimed to be Rs. 43,26,431, even though no deduction under section 80 HHC is claimed because the gross total income during the year was nil. In the computation of total income as per the normal provisions other than section 115JB, the assesee has claimed deduction u/s. 80 HHC at Nil while working out the book profit u/s.115JB, the assessee has deducted Rs. 43,26,431 on account of profit eligible for deduction u/s. 80 HHC. The Assessing Officer asked the assessee to explain as to why the deduction u/s. 80HHC, as actually claimed in the return and not the profits said to be eligible for deduction under section 80 HHC, be reduced from the book profit u/s.115JB. It was explained before the AO that the deduction u/s. 80HHC is allowable as per section 115JB(2)(iv) of the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s. 80 HHC of the Act to the appellant from book profit." 8. Aggrieved, the revenue is in appeal before the Tribunal. 9. Learned representatives fairly agree that the issue under consideration is squarely covered by the decision of a co-ordinate Bench in the case of DCIT v. M/s. Glenmark Laboratories Ltd in ITA No.4155/M/2007 for the assessment year 2004-05, wherein, the Tribunal following the decision of the ITAT (SB) in the case of Syncome formulations (I) Ltd. (supra) has affirmed the view of the CIT (A) deleting the similar addition. In any event, the view taken by the Tribunal in Special Bench decision in the case of Syncome Formulations (supra) now stands approved by Hon'ble Supreme Court in the case of Ajanta Pharma Ltd vs CIT (327 ITR 305). 10. Ground No. 2 is thus dismissed. 11. In ground no. 3, the Assessing Officer has raised the following grievance:- 3. On the facts and in the circumstances of the case and in law, the CIT (A) erred in directing the AO to re-compute the adjusted profit from DEPB, after reducing the reasonable cost of DEPB from the sale consideration, for computing the deduction u/s. 80 HHC, ignoring the fact that the assessee company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer on this issue. 14. Ground No. 3 is thus allowed. 15. In ground no. 4, the Assessing Officer has raised the following grievance:- 4. On the facts and in the circumstances of the case and in law, the CIT (A) erred in directing the AO to re-compute the deduction u/s. 80 HHC by taking the turnover of the taxable division only on "standalone" basis and ignoring the turnover of the other divisions, without considering the provision of section 80 AB of the Act, which talk about the gross profit of the assessee and not of the Division. 16. With regard to Ground No.4, learned representatives fairly agree that the issue is covered by the decision of the ITAT in assessee's own case for the assessment years 1998-99, 1999-2000(supra). We find that similar issue had come up for consideration before a co-ordinate Bench of this Tribunal and it was, inter alia, observed as follows:- "During the course of hearing before us the learned counsel for the assessee pointed out that the assessee company was engaged in diversified business activities and each business was distinct and separate from another. For this purpose the assessee company had several division viz. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Spl. Rg.9, Mumbai for A.Y 1991-92 and decision of ITAT Mumbai Bench 'C' dated 8/7/02 in ITA No. 4259 and 4260/Mum/95 in the case of DCIT Spl. Rg.22 Mumbai vs. M/s. Trab Enterprises for A. Y.s 1990-91 and 1991-92. it is seen that in the later case the Tribunal has followed the judgment of the Jurisdictional High Court in the case of K.K. Doshi and Co. 245 ITR 849 (Bom) Respectfully, following these decisions of the Tribunal we accept the assessee's grounds of appeal no.7 and direct that the assessee should be allowed deduction u/s.80HHC on the basis of the business turnover and business profit of Textile Division only without taking into consideration the business turnover and the business profit of other Divisions." 17. Having heard the rival contentions and having perused the material on record, we see no reasons to disturb the conclusions arrived at by the CIT(A) Since the CIT (A) has followed the decision of the Tribunal (supra) directing the AO to compute the deduction under section 80 HHC in respect textile division on 'standalone' basis taking into account the total turnover and business profits of textile division only, we see no reason to interfere with the order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailability of interest free/surplus funds diverted to Weizzmann Homes Ltd. In reply, it was, inter alia, submitted by the assessee that investments in the group company have been made from own fund as the net worth of the assessee company as on 31.3.2004 constituted at Rs. 61.45 crores. The AO rejected the assessee's contention, inter alia, observing that the assessee could not establish the nexus between availability of interest free/surplus fund and diversion thereof to M/s. Weizmann Homes Ltd. Accordingly, he disallowed interest expenditure of Rs. 109.20 lakhs and added back to the income of the assessee. Aggrieved, the assessee carried the matter in appeal before the CIT (A). The CIT (A) deleted the disallowance, inter alia, observing as under:- " .....During the year the appellant has invested a sum of Rs.7.26 crores in Weizmann Homes Ltd. and purchased its shares as is evident from the balance sheet. It is also evident from the balance sheet that no fresh borrowings have been made by the appellant during the year. In fact, the loans borrowed from banks and financial institutions have been reduced substantially and there is a minor increase in unsecured loans, which works ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the impugned order also reveals that the assessee has established one to one nexus. In any event, as is held by Hon'ble jurisdictional High Court in the case of CIT vs Reliance Utilities and Power Ltd (313 ITR 340), as long as assessee has sufficient interest free funds, the presumption to be taken is that the investments are made out of such interest free funds. We also find that a co-ordinate Bench of this Tribunal in the case of ACIT v. M/s. Vaman Prestressing co. Ltd. in ITA No.4190/M/2008 order dated 7.1.2010, on similar facts, rejected the grounds taken by the revenue. We, therefore, decline to interfere. 22. Ground No. 5 is thus dismissed. 23. In ground no. 6, the Assessing Officer has raised the following grievance:- 6. On the facts and in the circumstances of the case and in law, the CIT (A) erred in directing the AO to delete the disallowance of interest expenditure of Rs. 4,81,022 ignoring the fact that the same was incurred on diversion of higher interest bearing fund to directors close friends, at lower interest rate that too without any business need. 24. Apropos Ground No.6, facts are that the assessee has borrowed unsecured loan @ 15% interest and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fourth i.e. Rs. 7,24,200/- out of total expenditure of Rs.19,92,079. Aggrieved by the stand so taken by the Assessing Officer, the assessee carried the matter in appeal before the CIT (A). 29. Before the CIT (A), it was submitted that the whole expenses of the foreign traveling have been incurred for the purpose of business and no element of personal expenditure is involved. Reliance was placed in the case of Beta Naphthol Pvt Ltd., v DCIT, 50 TTJ 375(Indore), wherein, it was held that adhoc disallowance are not permitted. While the CIT(A) allowed the ticket expenses in full, he restricted the disallowance out of the balance expenses to 20%, as against 25% disallowed by the Assessing Officer. Aggrieved, the revenue is in appeal before the Tribunal. 30. Having heard the rival contentions and having perused the material on record, we see no reasons to disturb the findings of the CIT(A) on this issue either. The reasoning adopted by the CIT(A) is this. The requisite details of travelling, such as names of persons travelling and purpose of travel etc are on record, and since complete details of expenses, other than ticket expenses, are not placed, an adhoc disallowance of 20% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redited its PandL A/c., by an amount of Rs. 2,91,36,753/-, on account of remission of loan liability of Vysya Bank. However, in the computation of income, it has reduced the same. It is also noticed that the assessee company has not reduced the same out of block of assets, for which it has claimed to have been used. Accordingly vide order sheet noting dt. 16.10.06, the A.R. of the assessee company, was requested to furnish the necessary papers/reports, submitted for sanction of loan, copy of settlement letters for remission of liabilities, details of interest paid till date etc. against the loan borrowed from the Vysya Bank. In compliance the A.R. of the assessee company, simply furnished a sanction letter regarding approval of the higher authorities of the bank, for investing in the NCD, to meet the capital expenditure of the company, at 16% interest p.a.. The assessee company, however, could not furnish the other documents, as desired above. In due course of time on 07.12.06, the assessee company has submitted a letter dt. 02.12.06, signed by the Vice President and Head of ING Vyasa Bank Ltd., Mumbai regarding one time settlement of outstanding balance under NCD - Rs.750 lacs. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk, vide his reply dated 08/12/2006 has submitted as under:- "With reference to the above we furnish hereunder the following details:- (a) and (b) Particulars Lease finance for Wind mills Non convertible Debentures(NCD) Date of Sanction 28/03/1995 29/09/2001 Amount Sanctioned Rs. 450.00 lacs Rs. 750.00 lacs Rate of Interest. OD Int. @ 24.48% @ 14% comp (Half year rests) Repayment period 43 quarters 84 months with initial holiday period of months Purpose of facility 2 wind mills of 500 KV To meet normal capital expenditure of the company (c) Details of securities (NCD facility):- (i) Hypothecation of 2 wind mills of capacity of 500 KW belonging to Company located at Ram girl, Anantapur Dist~, Andhra Pradesh together valued at Rs.3.30 crores (which are free from encumbrance of any nature) (ii) Equitable mortgage of property at Laxmi Chambers, 3" Floor, MG. Road, Ernakula, Chochin valued at Rs.35 lacs (iii) Personal Guarantee of Chetan D. Mehra (iv) EM of office unit No. 005, 005A and 005B, Centre Point, Residency Road, Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m for final settlement and no further increase is possible for the party. (f) The Executive management committee of the Bank permitted for write off/waiver as under:- Lease account:- To sell the wind mills to TAPL Energy Projects Ltd. for Rs.20000 lacs To write off balance in book balance of Rs.163.90 lacs To waiver the overdue interest of Rs.159.17 lacs To transfer the assets to them NCD Account To accept Rs.120.00 lacs as full and final settlement To write off balance in book balance of Rs.266.37 lacs To waive overdue interest of Rs. 234.9-i lacs 5. Details of amount Recovered from the company out of the crystalised liability of Ps. 775.00 lacs in NCD and Lease Finance Facility are as under:- Date of recovery Amount recovered (Rupees) 01/01/2003 10000000.00 04/04/2003 20000000.00 25/04/2003 1000000.00 12/07/2003 2000000.00 06/09/2003 1050000.00 12/09/2003 400000.00 10/10/2003 1000000.00 11/10/2003 500000.00 05/11/2003 413246.52 06/2004 32000000.00 Total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that remission of loan does not come under the purview of section 41(1) of the I.T.Act. 13.10 As the facts speak, the appellant availed loan facilities from the ING Vysya Bank on two counts namely, lease finance for windmills of Rs. 450 lacs on 28.3.1995. Another loan was also taken by the appellant company on account of NCD obtained on 29.9.2001 at Rs. 750 lakhs. The appellant maintains both loan accounts separately. Even interest account in respect of both the accounts was maintained separately. From the ledger account of ING Vysya Bank in appellant's books, it is noted that the appellant obtained loans of Rs. 750 lakhs on 28.10.2001 against 750 NCDs of Rs. 1,00,000 each. As on 31.3.2004 the balance loan on this account was Rs.4,70,88,295. Against this loan balance, the appellant made payment of Rs. 59,51,541 leaving a loan balance of Rs. 4,11,36,754. The company has then negotiated with the bank for waiver of the said loan. After negotiations the bank agreed to waive the loan of Rs. 2,91,36,753 only and the remaining amount of Rs. 1,20,00,000 out of Rs. 4,11,36,754 was paid by the appellant. A close look on the interest account in respect of this loan reveals that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count. Thus, it is seen that a sum of Rs. 25 lacs pertains to lease rent account and this amount therefore is not a part of loan amount remitted by the appellant but a part of interest account which has been remitted. 13.14 It is further noted that in respect of lease rent account which started from 30.9.1996 to 31.3.2003 the interest under the lease rent account has regularly been paid by the appellant except a sum of Rs. 1,13,04,918 which was due to the bank on 31.3.2003. Out of this, the appellant adjusted a sum of Rs. 25 lacs and the remaining amount of Rs. 88,04,918 which was claimed in the profit and loss account has been offered to income tax in the A.Y. 2003-04. In case, the appellant had written back Rs. 25,00,000 alongwith Rs. 88,04,918 on account of interest totaling to Rs. 1,13,04,918 and offered the same to tax, only in that case, the appellant's claim of Rs. 2,91,36,753 could have been considered as remission of loan liability. Thus, in my considered opinion, the appellant is entitled for relief of Rs. 2,66,36,753 as the same is not hit by the provision of section 41(1) of the I.T.Act being the remission of loan amount. The sum of Rs. 25 lacs remitted by the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra), it cannot be open to us to disregard the law laid down by Hon'ble High Court in Mahindra and Mahindra's case. In this view of the matter, and having regard to the fact that it is an uncontroverted finding of the CIT(A) that the amount representing impugned relief was never claimed as deduction by the assesse, we see no reasons to disturb the well reasoned findings of the CIT(A). We approve the stand of the CIT(A) and decline to interfere in the matter. 38. Ground No. 8 is thus dismissed. 39. Ground No. 9 is as follows:- "9. On the facts and in the circumstances of the case and in law, the CIT (A) erred in directing the AO to delete the disallowance of Rs. 63,36,000 of depreciation @ 5.28% made u/s.115JB in respect of inflated price of windmill of Rs. 12 cr which was disallowed after necessary verification in the earlier years." 40. Learned representatives fairly agree that the issue is covered in favour of the assessee by Hon'ble Supreme Court's judgment in the case of Appollo Tyres Ltd vs CIT (255 ITR 273), even as learned Departmental Representative rather dutifully relies upon the order of the Assessing Officer. We, therefore, see no reasons to disturb the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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