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TMI Blog2010 (12) TMI 844X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee-company filed a revised return on March 27, 2008 declaring a total income of Rs. 1,64,37,58,490 including the income of SOFL. The original return filed was processed under section 143(1) on November 21, 2007 and a refund of Rs. 3,36,05,819 was issued and the entire refund was adjusted to the outstanding demands of the earlier years. Subsequently, the case was selected for scrutiny. The assessee-company had prepared two sets of accounts for the year ended March 31, 2006-one, as per the Companies Act approved by the board of directors and submitted before the shareholders and Registrar of Companies ; and two, for the purpose of income-tax to be enclosed with the return of income. Both these sets of accounts were filed before the Assessing Officer during assessment proceedings along with reconciliation of accounts. As per the annual report, the profit before taxation was Rs. 21,616.87 lakhs but in the statement filed for the purpose of income-tax, profit before taxation in the original return was Rs. 15,397.39 lakhs. The difference of income in both returns apparently was stated to be due to the variation in depreciation claimed and other claims made by the assessee-comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Having regard to the fact that the assessee has not written off the bad debts in the books maintained by it for company law purposes, the learned Commissioner of Income-tax (Appeals) ought to have noted that the assessee itself was not convinced of its bad debts claim and hence, the claim of bad debts ought to be treated only as a provision. 3.1 The learned Commissioner of Income-tax (Appeals) erred in deleting the disallowance of Rs. 11,78,613 attributable to diminution claimed by the assessee in value of investments. 3.2 The learned Commissioner of Income-tax (Appeals) failed to appreciate that the hon'ble apex court in the case of Vijaya Bank v. Addl. CIT [1991] 187 ITR 541 (SC), quoted with approval the following observation of Lord Justice Jenkins in CIR v. Pilcher [1949] 31 TC 314, 332 (CA):- 'It is a well settled principle that outlay on the purchase of an income bearing asset is in the nature of capital outlay, and no part of the capital so laid out can, for income-tax purposes, be set off as expenditure against income accruing from the asset in question.' 4.1 The learned Commissioner of Income-tax (Appeals) erred in directing the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding that the entire amount of bad debts has been written off satisfying the provisions of section 36(1)(vii) of the Act and in view of the Tribunal order dated April 21, 2006, in the assessee's own case, the learned Commissioner of Income-tax (Appeals) deleted the disallowance of Rs. 13,57,58,000. Now, the Revenue is in appeal. Before us, it was argued by the learned Departmental representative that the amount of Rs. 13,57,58,000 was only a provision as per the books of account maintained for company law purposes. Hence, the assessee has not complied with the law. The learned authorised representative has heavily relied on the finding of the learned Commissioner of Income-tax (Appeals). After hearing both sides in the light of the available material on record and the relevant precedents and provisions of law, we find that similar claim relating to bad debts along with various other issues raised in the Revenue's as well as the assessee's appeals came to be considered by the Income-tax Appellate Tribunal, Chennai 'B' Bench, in a consolidated order dated April 21, 2006 relating to this assessee and others in the following appeals:- (i) I. T. A. Nos. 1877 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144.' 19. Further we find that there is no prohibition in the Income-tax Act that the assessee cannot maintain the records as well as accounts statement for the purpose of compliance with other Acts. For example, the Companies Act or for the purpose of the Central Excises and Salt Act, 1944. We also find that there is no provision in the Income-tax Act, which makes it compulsory for any assessee to file reports as per accounts maintained for the purpose of the Companies Act. In fact, whenever such a situation arises special provision has been made, e.g., in case of section 115J, section 115JA and section 115JB where book profits as per accounts maintained in compliance with Schedule-VI of the Companies Act is to be adopted and certain adjustments as provided in these provisions have to be made. This clearly shows that apart from these provisions, the profits for the purpose of the Income-tax Act have to be determined on the basis of accounts prepared for the purpose of income-tax. In the case before us, the assessee has clearly maintained separate accounts for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to the assessment years 2003-04, 2004-05 and 2005-06, we find the Assessing Officer made similar additions in the regular assessments and also while computing book profit for section 115JB assessment. The first appellate authority deleted the additions and though the Revenue filed appeals to this Tribunal, it did not choose to challenge the deletion of the addition with regard to claim of bad debts in the regular assessments. In those appeals the Revenue challenged only the deletion with regard to section 115JB computation along with a few other issues. In other words we find the issue of claim of bad debts for the purpose of regular assessments for the assessment years 2003-04, 2004-05 and 2005-06 reached finality with the Commissioner of Income-tax (Appeals) deleting the addition made in the assessments. To reiterate, the assessee has maintained separate accounts for the purpose of income-tax. The income for regular assessment under section 143 needs to be determined on the basis of these books only. It is only for the purpose of application of section 115J or 115JA or 115JB that the accounts kept by the assessee in compliance with the provisions of the Companies Act ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ground that these securities have been classified as investment in the balance-sheet and that the income earned on their release is in the nature of dividends which are exempt under section 10(34) of the Act and hence, the diminution in the value is not relatable to exempt income allowable as deduction. The main argument of the learned Departmental representative in this regard was that these investments were kept not in the business portfolio but in the investment portfolio and the income from these investments was claimed as exempt under section 10(34) of the Act. The submission of the learned authorised representative against the contention of the learned Departmental representative is that the securities were purchased to satisfy the statutory liquidity ratio (SLR) and hence, they are not idle investments but represent securities purchased to satisfy statutory liquidity ratio requirements in the course of carrying on business. It was further submitted that, in fact, the income from securities were not claimed as exempt by the assessee. It was further argued that looking to the correct facts, the manner in which entries were made in the books of account is not determinative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als) in this regard also and thus, dismiss ground No. 3 of the Revenue's appeal. The next issue of this appeal, raised ground No. 4, is in relation to deletion of addition made on account of disallowance of Rs. 11,09,898 made towards long-term capital loss. The assessee incurred loss on sale of shares held by it as investment and had claimed that they be allowed to be carried forward. But the Assessing Officer was not agreeable because the sale was made to its group concern namely, M/s. Shriram Investments, and the sale was not made through stock exchange. He also noticed that the basis of arriving at the sale value has not been furnished before him. So, he declined to carry forward the capital loss. The case of the assessee is that most of the shares sold were not quoted in the stock exchange and there were no ready buyers. The assessee was compelled to divest the shares on account of the Reserve Bank of India directions that non-banking financing company has to discontinue activities not relating to its core business. It was also argued that the genuineness of the sale was never questioned by the Assessing Officer. So, the long-term capital loss claimed has to be allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inance Co. Ltd., where the assessee had written off the entire bad debts in the books maintained for income-tax purposes but not in the books maintained for company law purposes. Therefore, with similar reasoning, we dismiss the ground raised by the Revenue. The next issue of this appeal relates to the direction given by the learned Commissioner of Income-tax (Appeals) to the Assessing Officer to allow the royalty of Rs. 47,85,125 in full as revenue expenditure instead of Rs. 11,96,281 allowed as depreciation. The facts of this issue are that the assessee had paid royalty of Rs. 47,85,125 to Shriram Chits and Investments P. Ltd. for using the logo owned by the latter. The Assessing Officer found that this payment relates to payment of royalty for acquiring an intangible asset. He has ignored the mode and method of payment and duration of payment, holding them to be irrelevant for the purpose. On the contrary, he has allowed depreciation at 25 per cent. on the entire payment by holding it a capital expenditure. Accordingly, he has added back Rs. 47,85,125 and has allowed depreciation of Rs. 11,96,281. In the first appeal, the learned Commissioner of Income-tax (Appeals) has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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