TMI Blog2013 (9) TMI 673X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of profit eligible for deduction under section 80HHC in terms of provision (viii) of the Explanation to section 115JA – Held that:- The Special Bench of the Tribunal in case of Deputy CIT v. Syncome Formulations (I) Ltd. [2007 (3) TMI 288 - ITAT BOMBAY-H] has held that the profit eligible for deduction under section 80HHC for the purpose of adjustment under section 115JA has to be computed on the basis of adjusted book profit under section 115JA and not on the basis of profit computed under regular provisions of the Act. The said decision of the Special Bench of the Tribunal has been upheld by the Hon'ble Supreme Court in the case of CIT v. Bhari Information Tech. Sys. P. Ltd. [2011 (10) TMI 19 - Supreme Court of India] - In view of this position, the Assessing Officer is directed to compute profit eligible for deduction under section 80HHC on the basis of adjusted book profit and not on the basis of profit computed under normal provisions of the Act. Disallowance of interest in relation to interest free advance to 100 per cent. subsidiary, i.e., Bespoke Finvest Ltd - Internal accrual were sufficient to advance the amount to the subsidiary – Held that:- In this year, the dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment proceedings noted that the assessee had borrowed funds on which substantial interest had been paid. The assessee had also made investment in shares/mutual funds totalling Rs. 138.55 lakhs. The Assessing Officer observed that the assessee had not been able to furnish evidence that investment in shares and mutual funds had been made out of interest free funds. He, therefore, disallowed the interest relating to investments in shares/mutual funds on proportionate basis. The Assessing Officer noted that debt was 63.66 per cent. of total funds and therefore, he treated 63.66 per cent. of investment in shares and mutual fund as made out of borrowed funds totalling Rs. 88.20 lakhs. He, thus, disallowed interest proportionate to said amount at 11.86 per cent. being average cost of borrowings which came to Rs.1,046.06 lakhs. In appeal the Commissioner of Income-tax (Appeals) noted that out of the investment in shares/mutual funds, current investment was only Rs.2457.61 lakhs and balance amount was the investment made in the earlier years. The Commissioner of Income-tax (Appeals) also noted that out of the current year investment of Rs. 2457.61 lakhs, Rs. 1,057.00 lakhs was the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioner of Income-tax (Appeals) observed that in view of the judgment of the hon'ble High Court of Bombay in the case of IPCA Laboratories Ltd. v. Deputy CIT (No. 1) [2001] 251 ITR 401 (Bom) both profit and loss have to be considered and deduction could be allowed only from net the profit. Since in this case there was no net profit, the Commissioner of Income-tax (Appeals) confirmed disallowance aggrieved by which, the assessee is in appeal before the Tribunal. We have heard both parties in the matter. The learned authorised representative for the assessee fairly conceded that the issue has to be decided against the assessee in view of the judgment of the hon'ble Supreme Court in the case of IPCA Laboratory Ltd. v. Deputy CIT [2004] 266 ITR 521 (SC). Since the Commissioner of Income-tax (Appeals) has confirmed the disallowance following the judgment of the hon'ble High Court of Bombay in the case of IPCA Laboratories Ltd. [2001] 251 ITR 401 (Bom), which has been upheld by the hon'ble apex court the order of the Commissioner of Income-tax (Appeals) disallowing the claim is upheld. In grounds Nos. 3 to 7, the assessee has raised disputes regarding the Commissioner of Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue raised in (b) above, the same was not pressed before us by the learned authorised representative at the time of hearing of appeal due to the smallness of amount involved. The ground raised by the assessee on this issue is therefore, dismissed as not pressed. The issue raised in (c) above is regarding adjustment to book profit on account of profit eligible for deduction under section 80HHC in terms of provision (viii) of the Explanation to section 115JA. The Assessing Officer held that since there were huge losses and the assessee was not eligible for deduction under section 80HHC, no adjustment was required to be made. The decision of the Assessing Officer was confirmed by the Commissioner of Income-tax (Appeals) aggrieved by which the assessee is in appeal before the Tribunal. We have heard both parties in the matter. The Special Bench of the Tribunal in case of Deputy CIT v. Syncome Formulations (I) Ltd. [2007] 292 ITR (AT) 144 (Mumbai) has held that the profit eligible for deduction under section 80HHC for the purpose of adjustment under section 115JA has to be computed on the basis of adjusted book profit under section 115JA and not on the basis of profit computed under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 100 per cent. subsidiary, i.e., Bespoke Finvest Ltd. had been considered by the Tribunal in 1998-99 in which year also disallowance had been made by the Assessing Officer on similar basis. The Tribunal noted that the assessee had not given any fresh advance during the current year and outstanding balance was due to amount of dividend receivable and amount of stamp duty. The Tribunal also observed that internal accrual were sufficient to advance the amount to the subsidiary. The Tribunal accordingly deleted the disallowance made. In this year, the disallowance is mostly on account of opening balance which has already been deleted by the Tribunal in the assessment year 1998-99. In the current year, the advance given is only Rs. 8 lakhs which are easily explained from the current profit of Rs. 25.92 crores. We, therefore, see no justification for making the disallowance. The order of the Commissioner of Income-tax (Appeals) is therefore, set aside and addition made is deleted. The dispute raised in ground No. 10 is regarding disallowance of licence fee paid to RPG Enterprises Ltd. The Assessing Officer noted that the assessee had paid licence fee to RPG Enterprises which is a Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and project management system. The assessee furnished bills raised by the consultant and submitted that payment had been made by cheque. The Commissioner of Income-tax (Appeals) however, observed that mere evidence of payment was not enough. There was no agreement entered with the company. The assessee also did not produce final report. The Commissioner of Income-tax (Appeals) therefore, held that the expenditure could not be considered as incurred wholly and exclusively for the purpose of business. Accordingly he confirmed disallowance. Before us, the learned authorised representative for the assessee submitted that professional fees to Mckinsey and Co. had been paid for development of management information system (MIS) in relation to project Shikhar. The details of work done by the company had been given before the Assessing Officer which was available at pages 290 to 294 of the paper book. The payment had been made by cheque on the basis of bills raised by the company copies of which are placed at pages 282 to 289 of the paper book. The bills clearly show that the payment had been made in connection with consulting assignment. The learned authorised representative argued tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tc. Copies of correspondence in the matter have also been given at pages 295 to 298 of the paper book. Mckinsey Co., is an internationally reputed management consultant and not related to the assessee. In case the Assessing Officer and the Commissioner of Income-tax (Appeals) wanted they could have easily made enquiries in case they had any doubt about genuineness of the work done, but no adverse material in this regard has been placed on record. Therefore, in our view claim which is obviously of revenue in nature cannot be disallowed only on the ground that there were no agreements particularly when the assessee had placed on record the correspondence and report of the consultant regarding various types of consulting assignment being handled by them which was an on-going arrangement. We, therefore do not uphold the order of the Commissioner of Income-tax (Appeals) disallowing the claim. The claim is accordingly allowed. However, from perusal of invoices at pages 284 to 289 we find that total of the amount claimed as per invoices does not match with the total claim of expenditure. This requires verification. We, therefore direct the Assessing Officer to allow the claim after nece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee had made provision of Rs. 83,62,100 on account of doubtful debts in the profit and loss account. The Assessing Officer observed that in view of section 36(1)(vii) inserted with effect from April 1, 2001, bad debt can be allowed when it is actually written off in the books which had not been done. The Assessing Officer therefore disallowed the claim. In appeal the assessee relied on certain judgments to press the claim. The Commissioner of Income-tax (Appeals) however observed that the said judgments relate to the period prior to insertion of the Explanation to section 36(1)(vii) by the Finance Act, 2001. The Commissioner of Income-tax (Appeals) therefore confirmed the disallowance made by the Assessing Officer aggrieved by which the assessee is in appeal before the Tribunal. Before us, the learned authorised representative for the assessee submitted that the Assessing Officer disallowed the claim on the ground that it was only a provision which had not been written off in the individual accounts of the debtors. It was also submitted that the assessee had not written off the debt in the individual account but had reduced the amount written off in lump sum from the debit balan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income-tax (Appeals) to restrict disallowance of interest to Rs. 13.83 crores in place of Rs. 24.57 crores disallowed by the Assessing Officer. This issue we have already considered and decided while dealing with ground No. 1 in appeal by the assessee and in view of our decision in paragraph 4 earlier, the issue is restored to the Assessing Officer for fresh order in accordance with law after necessary examination and after allowing opportunity of hearing to the assessee. The second dispute is regarding adjustment on account of disallowance of interest on borrowings allegedly used for investment in shares and mutual fund units under clause (f) to the Explanation to section 115JA(2). Under clause (f) of the Explanation to section 115JA, the amount of expenditure relatable to any income which is exempt is required to be added to the book profit. The Assessing Officer accordingly added the sum of Rs.10.46 crores to the book profit. In appeal the Commissioner of Income-tax (Appeals) has restricted the adjustment to the extent of disallowance of interest confirmed by him against which the Revenue has filed the appeal. We find that this issue has already considered while dealing w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he judgment of the hon'ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC). The Commissioner of Income-tax (Appeals) after considering the submission of the assessee allowed the claim following the decision taken in the assessment year 1998-99. We have heard both parties, perused the records and considered the matter carefully. The dispute is regarding allowability of expenditure incurred in relation to projects where contracts were not awarded. We find that the same issue has already been considered by the Tribunal in the assessment year 1998-99 in which the Tribunal in I. T. A. No. 4862/M/2001 has allowed the claim of the assessee as revenue expenditure. The facts this year are identical as the Commissioner of Income-tax (Appeals) has allowed the claim following the decision in the assessment year 1998-99 which has been upheld by the Tribunal. Therefore, respectfully following the decision of the Tribunal in the assessment year 1998-99, we confirm the order of the Commissioner of Income-tax (Appeals). The fifth dispute is regarding disallowance of voluntary retirement scheme expenditure. The assessee had claimed a sum of Rs. 2.62 crores o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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