TMI Blog2012 (7) TMI 736X X X X Extracts X X X X X X X X Extracts X X X X ..... d passed the final order on 19-08-2003. Therefore, it cannot be said that the department was not given any opportunity - direction given by the BIFR is binding on the Assessing Officer - merit in the submission of the learned counsel for the assessee that if the reliefs are denied now the department has to provide a solution to the assessee as how to undo the amalgamation - in favour of assessee. Dis allowance of Expenditure incurred for earning dividend income - Held that:- There is no finding given by the AO that assessee has incurred any expenditure on account of interest on borrowed capital for earning the tax free dividend income. Further the submission of the assessee that the assessee has received only 5 dividend cheques amounting to Rs. 4.11 Crores could not be controverted by the learned DR.Thus disallowance of 5% of the dividend income is unjustified - order of the learned CIT(A) restricting the disallowance to Rs. 50,000/- on adhoc basis appears to be reasonable. - ITA No.181/PN/2004, ITA No.176/PN/2004 - - - Dated:- 27-6-2012 - Shailendra Kumar Yadav, R K Panda, JJ. For Appellant: C H Naniwadekar For Respondent: Mukesh Verma ORDER Per: R K Panda: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee is accordingly allowed for statistical purposes. 3. Ground of appeal No. 2 by the assessee reads as under : 2. Disallowance out of Commission expenses - Rs. 6,59,563/- The learned CIT(A) erred in confirming disallowance made by the assessing officer of commission genuinely and actually paid to various dealers by merely relying on surmises, guesswork and conjecture. He failed to appreciate that the appellant had produced full proof of payments and details of expenses. 3.1. After hearing both the sides, we find the AO following his order for assessment year 1997-98 disallowed Commission of Rs. 6,59,563/- being 10% of the commission claimed at Rs. 65,95,636/-. In appeal, the learned CITA) upheld the disallowance made by the AO. We find that identical issue had come up before the Tribunal in assessee s own case vide ITA No. 257/PN/2003 order dated 30-08-2011 for the assessment year 1998-99. We find the Tribunal at Para 7 of the order has discussed the issued and allowed the claim of the assessee by holding as under: 7. After considering the submissions of both the parties, we find that this issue stands decided in favour of the assessee and against the Revenue by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the auditors under the Income-tax Act cannot be disallowed. Following the precedent, therefore, we set aside the orders of the lower authorities on this aspect and direct the Assessing Officer to delete the disallowance made out of vehicle maintenance expenses. This Ground of appeal of the assessee is allowed . 4.2 Respectfully following the order of the Tribunal in assessee s own case and in absence of any contrary material brought to our notice this ground raised by the assessee is allowed. 5. Ground of appeal No.4 by the assessee reads as under : 4. Disallowance out of telephone expenses - Rs. 77,297/- The learned CIT(A) erred in disallowing Rs. 77,297/- out of expenditure incurred on residential telephones as non-business expenditure. He failed to appreciate procedure followed by the company for reimbursement of telephone expenses and consider the submissions made in these regards. He ought to have followed executive instructions issued by the Central Board of Direct Taxes regarding use of telephones by employees. 5.1. After hearing both the sides, we find the AO disallowed an amount of Rs. 77,297/- being 10% of the residential telephone expenses claimed by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earing both the parties, we are of the considered opinion that no such ad hoc disallowance is called in the assessee s case, which is a limited company and the expenditure incurred are certified by the auditors of the Company as also the auditors under the Income-tax Act, following the parity of reasoning laid down by the Hon ble High Court in the case of Kirloskar Ferrous Industries Ltd. (supra). In this view of the matter, we set aside the orders of the lower authorities on this aspect and the Assessing Officer is directed to delete the ad hoc disallowance of Rs 2,00,000/- made on this count. This Ground of appeal is accordingly allowed. 7.2. Respectfully following the order of the Tribunal in assessee s own case and in absence of any contrary material brought to our notice this ground raised by the assessee is allowed. 8. Ground of appeal No.7 by the assessee reads as under : 7. Disallowance out of aircraft expenses - Rs. 5,79,640/- The learned CIT(A) erred in holding that the aircraft were used for nonbusiness purposes when it was averred before him that the aircraft are jointly owned and other companies and there is no element of personal use at all. He further err ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the BIFR had recommended consideration of such reliefs under the IT Act by the Central Government. In supersession of this, the CBDT now directs that wherever the order of the BIFR in an approved scheme of reconstruction/rehabilitation (a) directs that the reliefs be allowed under the I.T. Act, 1961 the effect to such orders be given immediately. (b) recommends that the reliefs under the I.T. Act, 1961 may be considered by the Central Government, the relief be allowed to the assessee if during course of the proceedings before the BIFR, the views of the I. Tax Department have been considered by the BIFR. However, if the order of BIFR has been passed without making I. Tax Department a party or without giving a chance to the I.Tax Department to submit its views the effect of BIFR recommendations is to be given only after such recommendations of the BIFR are considered by the CBDT. 10.2. On examination of BIFR order dated 19th December 1999 the AO noted that the Income Tax Department was not a party and its views were not considered by BIFR before finalization of its proceeding. In view of the CBDT instructions (i.e., the order of the CBDT dated 16-02-2000) that in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the statute, the context in which it was used becomes an obligation or a direction. It would be an altogether case if the words may had been used, then the context may have become a discretion or a recommendation. It was accordingly submitted that the Assessing Officer had committed a grave error in law by not following the CBDT order, which was binding upon her. 10.5. The assessee emphasised the provisions of the scheme sanctioned by the BIFR u/s. 18(4) r.w.s. 19(3) of the Sick Industrial Companies Act (SICA) which had an overriding effect on any other provisions of any other Act except the provisions of FERA 1973 and Urban Land (Ceiling Regulation) Act, 1976. Reference was made to section 32(1) of SICA. It was also contended that the proceedings before BIFR were judicial proceedings and the BIFR was deemed to be Civil Court u/s. 14 of SICA. Once the Court passed any order, the effect of such order had to be given unless the order was modified by the same Court or any other higher judicial authority by due process of law, i.e. to stay till the order of the BIFR was modified, the existing present BIFR order was final and binding upon the tax authorities. 10.6. It was also p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udes measures to revive a sick unit is to be given even if they are not in line with the provisions of any other applicable laws. Thus section 32 is in line with the whole purpose of the SICA for ensuring speedy revival of a sick unit. As regards tax concessions, the CBDT has come out with an order u/s. 119(2)(a), which, incidentally recognizes the overriding powers of the BIFR granted to it u/s. 32 of the SICA. The order states that when the BIFR directs that the reliefs are to be granted, the effect of such reliefs is to be given immediately notwithstanding the fact whether the department was made a party to the hearing before BIFR. It is only when BIFR recommends that the reliefs are to be considered by the department then the issue will arise whether the department was made a party before the BIFR. Also if such recommendation is made by the BIFR after considering the department s views, then still the effect is required to be given. It is only if the recommendation is made by the BIFR without hearing the department, then the effect is to be given after they are duly considered by the CBDT. Thus the main issue to be decided in the present case is whether the reliefs gran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies Act, where no such outside parties were involved in formulating the merger proposal. In that case, also the proposal was initiated much later to be effective from an earlier date. In the instant case, SWL was declared as a sick company by BIFR in March 1998, and the steps to revive it were initiated immediately, and therefore there was nothing wrong to take 1.4.98 as the effective date. The BIFR has also stated the effective date as 1.4.98, and since there are no motives of tax planning which can be ascribed to the revival scheme, the effective date, once determined by the BIFR, will have to be followed. The issue of tax evasion has been raised by the Assessing Officer without examining the issue at the original state. The query regarding date of amalgamation was made by the Assessing Officer and which was duly explained by the appellant at the assessment stage which was apparently found to be acceptable as no further enquiry was made by the Assessing Officer on this account. The Assessing Officer has also not critically analysed facts of the case in FCL (supra) and that of the appellant. In the case of FCL in the appellate order for A.Y. 1998-99 I had agreed with the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d or rectified cannot be overlooked at the appellate stage. In that view of the matter, I find that the contentions of the Appellant s Representative are legally tenable and therefore, the Assessing Officer is directed to grant the reliefs which are mentioned in the order of the BIFR dated 16.12.1999. However, if and when the original order dated 16.12.1999 is modified by the BIFR or Higher Authorities or by Competent Forum it would be open to the Assessing Officer to modify her order accordingly giving effect to this appellate order. The ground of the appellant is allowed subject to the observation that if the order of the BIFR is modified/set aside subsequently the order giving effect to this order shall be modified accordingly by the Assessing Officer. 12.1. Aggrieved with such order of the CIT(A) the revenue is in appeal before us. 13. The learned DR submitted that the department was not a party to the BIFR proceedings. He submitted that after sanctioned scheme was passed without the department being made a party another order was passed on 19-08-2003. Referring to Page 166 of the Paper Book the learned DR drew attention of the Bench to the draft modification to the sancti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee on the other hand heavily relied on the order of the CIT(A) and drew the attention of the Bench to the chronology of events which are as under : Sr. Date Event 1 08-12-1999 Original order passed by BIFR 2 25-09-2000 IT Dept. Objects to BIFR order for non-opportunity 3 13-09-2001 BIFR issues notice for Draft Modification (to be replied within 60 days) 4 2-11-2001 KOEL objects to proposed draft modification 5 23-04-2002 KOEL makes further submissions 6 18-08-2003 IT Dept. Files adjournment letter 7 19-08-2003 BIFR passes final order He submitted that the SICA is a Special Act for rehabilitation of Sick Companies. It appoints the operating agency who is the lead bank. Referring to Page 125 of the Paper Book the learned counsel for the assessee drew the attention of the Bench to section 18 of SICA which speaks of preparation and sanction of scheme. Referring to Page 130 of the Paper Book the learned counsel for the assessee drew the attention of the Bench to section 25 of SICA according to whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d taken the correct decision. He submitted that if the reliefs are denied today the department has to provide the assessee a solution as to how to undo the amalgamation. He submitted that denying the benefit now will be unjust and unfair and against the principles of natural justice as held by the Hon ble Calcutta High Court in the case of CIT Vs. J.K. Corporation reported in 331 ITR 303 . Referring to the said decision he submitted that the Hon ble Court in the said decision has held that BIFR having sanctioned a scheme for rehabilitation of a sick industrial undertaking, by way of amalgamation/merger thereof with the assessee company by order dated 25-01-1994 giving retrospective operation to the scheme w.e.f. 01-02-1992, assessee company cannot be denied the benefit of carry forward and set off of losses of the amalgamating company for the period from 01-02-1992 to 31-03-1992 on the ground that the amalgamation could not be made operative retrospectively or that the consent of the Central Government was not taken. So far as the various decisions relied on by the learned DR he submitted that those decisions are distinguishable and not applicable to the facts of the present case. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy been reproduced at Para 10.1 of the impugned order according to which wherever the order of the BIFR in an approved scheme of reconstruction/rehabilitation directs that the reliefs be allowed under the Income Tax Act the effect to such orders be given immediately. It is only when BIFR recommends that the relief under Income Tax Act 1961 may be considered by the Central Government and the Department is not a party or no chance is given to the department to support its views, then the effect of BIFR recommendations is to be given only after such recommendations are considered by the CBDT. An examination of the BIFR order shows that the same is directory and not recommendatory in nature. Further after the original order was passed by the BIFR on 16-12-1999 the department has objected for not giving any opportunity for which the BIFR issued notice for draft modification. Despite such opportunity given the department sought adjournment which was not accepted by the BIFR and passed the final order on 19-08-2003. Therefore, it cannot be said that the department was not given any opportunity. 18. We find the provisions of section 32 of the SICA reads as under : 32. Effect of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company were to the tune of Rs. 97,60,95,000/-. The Assessing Officer asked for the details of each loan and advance and the purpose for which it had been given. The assessee filed the details of loans advances. According to the Assessing Officer the assessee gave only a note on advances given to M/s. Mysore Kirloskar Limited and merely stated that all the advances were given out of owned funds. The Assessing Officer was of the opinion that interest on borrowed funds to the extent not utilized for business purposes was to be disallowed u/s. 36(1)(iii) and for this purpose she adopted the method of applying the ratio of own funds to the interest bearing funds, i.e., borrowed capital deployed to the advances given for non-business purposes. The Assessing Officer worked out the ratio as under : Opening Bal. Closing Bal. Average Bal. (Rs. in 000) Own 34,75,733 29,19,462 31,97,597 Borrowed 30,82,651 25,38,656 28,10,653 Ratio 1:0.88 19.2. The Assessing Officer further treated Rs.19,35,47,589 out of total advances of Rs. 52,70,29,000 as business advances and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hearing both the sides we find the AO disallowed an amount of Rs. 20,53,048/- being 5% of the dividend income of Rs. 4,10,60,955/-. In appeal the learned CIT(A) restricted such disallowance to Rs. 50,000/- on the ground that the adhoc disallowance @5% of the dividend income is too high. It is the submission of the learned counsel for the assessee that there is no interest expenditure for earning the tax free dividend/income. Further it is also the submission of the learned counsel for the assessee that only 5 dividend cheques totalling to Rs. 4,10,60,759/- were received and therefore disallowance of 5% of the total income on estimate basis is unjustified. According to the learned counsel for the assessee since the learned CIT(A) has restricted the disallowance to Rs. 50,000/- on account of employee cost, infrastructure cost, etc. for earning the dividend income, therefore, the same being reasonable should be upheld. We find merit in the above submission of the learned counsel for the assessee. There is no finding given by the AO that assessee has incurred any expenditure on account of interest on borrowed capital for earning the tax free dividend income. Further the submission of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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