TMI Blog2012 (6) TMI 384X X X X Extracts X X X X X X X X Extracts X X X X ..... State Bank of Indore as income from house property – against assessee. Disallowance u/s 14A and rule 8D - expenditure attributable to the exempted income – Held that:- Making disallowance u/s 14A is no more res integra in view of the judgment in Godrej & Boyce Ltd. Mfg. Co. (2010 (8) TMI 77 (HC)) holding that the provisions of section 14A & Rule 8D are not retrospective, Rule 8D applicable from Assessment Year 2008-09 and disallowance for earlier period to be determined on reasonable basis and not under rule 8D – partly in favour of assessee. Income from sale of scrap – to be treated as income from other sources or from business and profession – Held that:- On being to show cause why the sale of scrap not to be to be treated as income from other sources assessee has not replied, since assessee is not doing any business, income from sale of scrap is taxable under the head income from other sources – against assessee. Cessation of trade liability - CIT (A) deleted the addition made by AO – Held that:- Waiver of loan liability credited by the assessee under capital reserve account in its books of account is a capital receipt and cannot be deemed as remission or cessation of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claring total income at ₹ 27,780/-. However, the assessment was completed at an income of ₹ 92,12,980/- under normal provisions of the Act vide assessment order dated 20.12.2006 passed under section 143(3) of the Income Tax Act, 1961 (the Act). On appeal, the ld. CIT(A) partly allowed the appeal. 3. Being aggrieved by the order of the ld. CIT(A), the assessee and Revenue both are in appeal before us. ITA No.646/Mum/2009 (by assessee) 4. Grounds of appeal No.I taken by the assessee reads as under : 1. On the facts and circumstances of the case and in law, the CIT(A),erred in upholding the action of the Additional Commissioner of Income Tax, Range 1(1), Mumbai ( the A.O. ) in disallowing a sum of ₹ 7,54,200/- being 50% of the expenditure in nature of Legal Professional Expenses on the alleged ground that expenses were not incurred for the purpose of business. 5. Briefly stated facts of the above issue are that the AO noted that the assessee company has claimed deduction for expenses incurred for Lalbaugh property to the tune of ₹ 15,08,400/- under the head Legal and Professional expenses . When asked to explain the nature of this exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd. We find that the ld. CIT(A) has observed that the expenditure claimed also includes expenses for development agreement which has been entered into by the partnership firm with third party in respect of the land after the appellant reaching a settlement with its partners. Therefore, development project belongs to the firm and any expenditure incurred in this regard cannot be the expenditure of the appellant. In the absence of the exact break up of expenses, he reduced the disallowance to 50%. In the absence of any contrary material placed on record by the ld. Counsel for the assessee against the findings of the ld. CIT(A) we are of the view that the ld. CIT(A) was fully justified in sustaining the disallowance to 50% and accordingly, the order passed by the ld. CIT(A) does not call for any interference. The ground taken by the assessee is, therefore, rejected. 9. Grounds of appeal No.II taken by the assessee reads as under : 1. On the facts and circumstances of the case and in law, the CIT(A) erred in upholding the action of the A.O. in assessing the Income received in the form of Rent and service charges from sub-lease under the head Income form House property instead ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avour of the Revenue by the order of the Tribunal in assessee s own case in M/s Bombay Gas Co.Ltd. V/s ITO in ITA No.2465/Mum/2007 (AY-2003-04) order dated 31.10.2011, therefore, the issue may be decided accordingly. 12. On the other hand, the ld. DR supports the order of the AO, ld. CIT(A) and the orders of the Tribunal in assessee s own case for Assessment Year 2003-04 (supra). 13. After hearing rival parties and perusal of the material available on record, we find merit in the plea of the parties that the issue is covered against the assessee and in favour of the Revenue by the order of the Tribunal, wherein it has been held vide paragraph 10.1 of the order of the Tribunal as under : 10.1 In view of the above discussion, we hold that the lower authorities have rightly treated the assessee as deemed owner u/s 27(iiib) of the Act and subsequently treated the rental income from State Bank of Indore as income from house property. Accordingly, this ground of the assessee is dismissed. 14. In the absence of any contrary material brought on record by the assessee, we respectfully following the order of the Tribunal (supra), decline to interfere with the order passed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e judgment of the Hon ble Bombay High Court in Court in Godrej Boyce Ltd. Mfg. Co. V/s DCIT (2010) 328 ITR 81 (Bom) . 18. Having carefully heard the submissions of the rival parties and perusing the material available on record we find merit in the plea of the parties. The question of making disallowance u/s 14A is no more res integra in view of the judgment of the Hon ble Bombay High Court in Godrej Boyce Ltd. Mfg. Co. (supra) holding that the provisions of section 14A are applicable in circumstances as are prevailing presently and the disallowance has to be worked out by the AO on some `reasonable basis and not under rule 8D. Under such circumstances, we set aside the impugned order and restore the matter to the file of the AO for deciding the quantum of disallowance, as per the afore-noted judgment, after allowing a reasonable opportunity of being heard to the assessee. The ground taken by the assessee is, therefore, partly allowed for statistical purposes. 19. Ground No.IV taken by the assessee reads as under : 1. On the facts and circumstances of the case and in law, the CIT(A) erred in upholding the action of the AO in treating the income from sale of scrap o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law the CIT (A) is right in deleting the addition of ₹ 35,67,817/- u/s.41(1) of the I.T.Act being cessation of trade liability. 25. Brief facts of the above issue are that the AO found from the note appended to form No. 3CD of the audit report that there was a cessation of liability amounting to ₹ 35,67,817/- which has not been credited to the P L account and not declared as taxable income. On inquiry by the AO, the assessee submitted that the assessee owned a sum of ₹ 1,20,67,817/- to M/s Blue Chip Business Centre Pvt. Ltd. towards advance received in earlier years. That party was in requirement of funds and agreed to accept ₹ 85 lacs as full and final settlement of the dues. The difference amount of ₹ 35,67,817/- has been transferred to capital reserve. This cannot be treated as income for the current year as it was not a cessation of trading liability. This liability was in respect of a loan which ceased to exist and as such was credited as a capital receipt. Referring to the provisions of section 41(1) the assessee pleaded that this section specifically covers only trading liability and not any other liability. In the assessee s case, it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,67,817/- as the assessee s income for the year under consideration. 26. On appeal, the ld. CIT(A) while observing that it is not disputed that the advance received by the appellant from M/s Blue Chip Business Centre Pvt. Ltd. has not been claimed as deduction in the profit and loss account, therefore, the basic condition under section u/s 41(1) that the deduction must have been given in any year in respect of the liability which has ceased to exists, has not been fulfilled. The Ld. CIT(A) following the decision of the Hon ble Bombay High Court in the case of Mahindra Mahindra Ltd Vs CIT (2003) 261 ITR 501 (Bom) and the decision of the Tribunal in Prism Cement Ltd. V/s JCIT (2006) 285 ITR (AT) 43 ITAT(Mum) held that the AO was not justified in making addition to the appellant s income and hence he deleted the same. 27. At the time of hearing, the ld. DR while relying on the order of the AO submits that it is a case of cessation of trade liability, therefore, the ld. CIT(A) has erred in deleting the addition of ₹ 35,67,817/ made by the AO u/s 41(1) of the Act. The reliance was also placed on the decision of the Tribunal in Schenectady Specialities Asia (P) Ltd V/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during any previous year,- (a) the first mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not. 30. We have refrained from reproducing the rest of the section which is not relevant for the purpose of the present controversy, before us. 31. Thus to invoke the provisions of s. 41(1), the following conditions must be fulfilled : (i) In the assessment of the assessee, an allowance or deduction has been made in respect of loss, expenditure or the trading liability incurred by the assessee. (ii) The assessee must have subsequently (i) obtained any amount in respect of such loss or expenditure or (ii) obtained any benefit in respect of such trading liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p Business Centre Pvt. Ltd, the assessee credited this amount into capital reserve account as capital reserve not subject to tax. In the light of the above facts, we find that there is no dispute that the advance received by the assessee from M/s Blue Chip Business Centre Pvt. Ltd. has not been allowed as a deduction in any of the previous financial year. Thus it is a case of loan liability and not trading liability. 34. It is settled law that if the loan was taken for acquiring the capital asset, waiver thereof would not amount to any income exigible to tax. On the other hand, if this loan was for trading purpose and was treated as such from the very beginning in the books of account, as per T.V.Sundaram Iyengar and Sons Ltd s case (supra), the waiver thereof may result in the income more so when it was transferred to Profit and Loss account. 35. It is also settled law that when the question is whether a receipt of money is taxable or not or whether certain deductions from that receipt are permissible in law or not, the question has to be decided according to the principles of law and not in accordance with accountancy practice. 36. The decision relied on by the ld. DR in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . He further found that this expenditure was disallowed from 1996-97 onwards and such disallowance has been confirmed by the CIT(A). Accordingly, he called for the explanation of the assessee. He was not satisfied with the assessee s explanation that such disallowance in the past is under appeal before the ITAT and that some new loans have been taken during the year. He observed that it appears from the details of expenditure that 15.96 lacs is the interest element on loans of preceding years, mainly term loan from State Bank of Indore while balance interest is on fresh loans raised during the year. According to him the facts of the case as for old loans are concerned are similar to the facts in preceding years and accordingly he disallowed interest component on old loans amounting to ₹ 15.96 lacs. On appeal, the ld. CIT(A) while observing that there is no dispute that the facts relating to the disallowance of interest are the same as in the earlier years, followed by the order of the Tribunal in the assessee s own case for the assessment years 1996-97 and 1997-98 and deleted the disallowance made by the AO. 43. At the time of hearing, the ld. DR supports the order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO observed that the assessee had debited a sum of ₹ 72,05,571/- towards write off of fixed assets and another sum of ₹ 1,57,48,103/- towards write off of miscellaneous expenses. The assessee had further credited a sum of ₹ 35,67,817/- towards cessation of liabilities. For the purpose of calculating the book profit u/s 115JB the AO added the write off of fixed assets, the write off of miscellaneous expenditure and cessation of liabilities while calculating the book profit on the ground that the amounts written off were on estimated basis and were representing the provisions for unascertained liability. On appeal, the ld. CIT(A) relying on the decision of the Special Bench of Kolkata Tribunal in Jt.CIT V/s Usha Martine Industries Limited, (2007)104 ITD 249[Kol.](SB) and the decision of the Hon ble Supreme Court in the case of CIT V/s . HCL Comnet Systems Services Ltd. [2008] 305 ITR 409 (SC) has held that the AO was not justified to add back the amounts claimed towards the write off of fixed assets and write off of miscellaneous assets for the purpose of computing book profit u/s 115JB and accordingly deleted the addition made by the AO. 49. At the time of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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