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TMI Blog2014 (6) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... cases : (i) United Commercial Bank Ltd. Vs. CIT (1957) 32 ITR 688 (SC) (ii) Tuticorin Alkali Chemicals and Fertilizers Ltd. vs. CIT (1997) 227 ITR 172 (SC) (iii) South India Shipping Corporation Ltd. Vs. CIT (1999) 240 ITR 24 (Mad) (iv) Shams Tabrez Vanti, IN RE (2005) 273 ITR 299 (AAR). 2. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in relying upon the decision of the ITAT on the issue of inclusion of interest income in book profit for the purpose of computation of salary to partners, wherein it is held that interest income is not required to be excluded from net profit declared by the assessee for computing book profit to determine the allowable deduction of remuneration payable to the partners u/s. 40(b) of the I.T. Act, 1961, when the said interest income does not come within the ambit of section 28 of the I.T. Act, 1961 ? 3. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in following the ITAT's decision, which ignores the fact that the assessee firm's interest income from fixed deposits with banks, MSEB security deposit and from others wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal in the case of assessee, for the A.Ys. 2003-04 and 2004-05 in ITA Nos. 143 & 144/PN/2008, we find that under similar facts and circumstances, an identical issue has been decided by the Tribunal in favour of the assessee. The relevant para No. 4 of the said order dt. 18.6.2010 is being reproduced here-under for ready reference :- "4. After having gone through the order impugned, we find that the A.O after examining the issue had allowed inclusion of interest receipt for the purpose of calculating the allowable remuneration to the partners during the assessment year under consideration in the assessment framed u/s 143(3) of the Act. Such interest receipt was of Rs. 1,79,16,927/- in A.Y. 2003-04 and Rs.1,51,91,939/- in A.Y. 2004-05. These interests were earned on the FDs with various banks, MSEB deposits, deposits with other parties and on Income-tax refund. The A.O issued a specific letter calling for explanation to exclude the said interest receipts from book profit to calculate remuneration u/s 40(b) of the Act. The A.O was satisfied with the reply of the assessee made in this regard. The learned CIT was however of the view that there is no direct nexus between the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prejudicial to the interest of revenue. In this regard, we find strength from the decisions of the Hon'ble Supreme Court in the case of Malabar Industrial Company Ltd. Vs. CIT (supra) and CIT Vs. Max India Ltd.(supra) relied upon by the learned AR. Ground no. 1 questioning the validity of order passed u/s 263 on the basis that when two views are possible on certain point and A.O after calling for required information has taken a view as per the provisions of the Act recourse cannot be had to the provisions of section 263 of the Act, is thus allowed. In view of allowability of ground no. 1 there is no need to adjudicate upon on the alternative grounds no. 2 to 4 of the appeal." 4. In the present assessment year also, the book profit adopted for purpose of calculating the allowable salary/remuneration included interest income of Rs.1,47,83,785/-. This amount consisted of interest received on FDs with various Banks, MSEB deposits on SD, on other parties and income-tax refund. Before the Ld CIT, the assessee explained that the above deposits on which interest has accrued were made out of business compulsion and expediency. The Ld CIT did not agree with this explanation and held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd to every subsequent assessment year upto the assessment year under consideration which in the context of the assessee would mean that profits earned from generation and sale of electricity from all the Units would have to be considered before computing the available profits for allowing deductions in terms of section 70 of the I.T. Act, 1961. 5. On the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals), Kolhapur erred in relying upon the ITAT's order in the case of M/s Preetam Enterprises in ITA Nos. 544, 545 and 613/PN/2009 dt.29.04.2011 wherein the ITAT held that losses and depreciation of earlier years already absorbed against profits of other businesses cannot be initially brought forward and set off against the profits of the eligible business, as the same is contrary to the provisions of section 80IA(5) of the I.T. Act, 1961." 4.1 At the time of hearing the Ld. Counsel for the assessee submitted that the above grounds by the Department for the impugned assessment year are misconceived as the Assessing Officer had allowed the deduction during assessment proceedings itself and the issue was not before the Ld.CIT(A). The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur view was not justified in treating the hiring of truck to supply the milk in isolation as work contract to attract the provisions of Sec. 194C of the Act without appreciating that predominant fact behind was purchase/sale of milk. ........ Respectfully following the above decision of the Honourable ITAT, the additions made on account of truck hire payments are deleted for assessment years 2006-07 and 2007-08." 5.3 Aggrieved with such order of the CIT(A) the Revenue is in appeal before us. 6. After hearing both the sides, we find no infirmity in the order of the CIT(A) who has followed the decision of the Tribunal in assessee's own case for A.Y. 2005-06 order dated 19-11-2010. In view of the above and in absence of any contrary material brought to our notice against the order of the Tribunal the order of the CIT(A) on this issue is upheld and the grounds raised by the Revenue are dismissed. 7. In the result, appeal for A.Y. 2006-07 by the revenue is dismissed.ITA No.22, 23 and 24/PN/2013 (A.Yrs. 2007-08, 2008-09 & 2009-10) : 8. Grounds of appeal Nos. 1 to 3 by the revenue in the above appeals relate to inclusion of interest income in book profit for calculating the partners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(a) of the Act. 29. Thus, in view of the identical facts and circumstances, decision of the Honourable ITAT reproduced above is applicable to the instant case also. The disallowances made for the assessment years under appeal are therefore, deleted. This ground of appeal is allowed." 9.3 Aggrieved with such order of the CIT(A) the Revenue is in appeal before us. 10. We have heard the rival arguments made by both the sides. We find the Ld.CIT(A) while deciding the issue in favour of the assessee has followed the decision of the Pune Bench of the Tribunal in the case of M/s. Preetam Enterprises (Supra) and the decision of Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills Pvt. Ltd. (Supra). Nothing contrary was brought to our notice against the order of the Tribunal and that of the Hon'ble Madras High Court which has been followed by the Ld.CIT(A) while deciding the issue in favour of the assessee. We accordingly uphold the same and the grounds raised by the revenue are dismissed. 11. Grounds of appeal No.6 and 7 by the Revenue for A.Y. 2007-08 are identical to grounds of appeal Nos. 6 and 7 in ITA No.21/PN/2013. We have already decided the issue and the grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax was deducted at source in respect of payments made to Chitale Digitals (A.Y. 2008-09) and Printex Sales and Services". 12.3 So far as the disallowance of payment to MSEB u/s.40(a)(ia) for non deduction of tax at source is concerned it was explained as under : "The question of making any payment to MSEB did not arise at all as the appellant firm had received less credit for the units generated and therefore, the firm had suffered a loss. In view of this, the provisions of section 40(a)(ia) was not applicable in its case. Alternatively it was explained that - i) The credit given by MSEB is by way of credit in energy / power bill of the appellant firm. ii) As per the condition laid down by MSEB in its letter dated 28/03/2003, the consumer will be given 85% credit of total units received for wheeling and the balance 15% will be accounted for after approval of MERC for energy utilized against EWA. iii) 93% credit given to the appellant was accounted for and the balance 7% (comprising of 5% on account of transmission loss and 2% for wheeling units) could not be considered as income as the same has been deducted by the MSEB and was not received by the appellant. iv) Wheeling ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture of expenses incurred. Hence, the disallowance made is sustained to the extent of Rs.1,34,692/-." 12.5 Similarly, the disallowance u/s.40(a)(ia) for non deduction of tax from payments made to MSEB was also deleted by him by observing as under: "34. I have gone through the submissions of the appellant with reference to the facts of the case. First and foremost it requires to be stated that the appellant's reliance on the case of GRIDCO Ltd. V/s ACIT, Circle 2(19) /supra is incorrect because the facts and circumstances in both the cases are different. In the case of GRIDCO Ltd., consequent to a Gazette notification dated 09/02/2005 an independent company viz. Orissa Power Transmission Corporation Ltd. (OPTCL) came into existence which was engaged in transmission and wheeling of power. As a result of the new company coming into existence, the bulk supply agreement entered into by GRIDCO Ltd. with the DISCOMS stood automatically modified whereby GRIDCO Ltd. had no role in transmission of power to the distributing companies. Under these circumstances, it was held by the Honourable Tribunal that there was a privity of contract for payment of transmission charges between OPTCL a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5% is also not the result of any contract or any technical services rendered by the MSEB. In fact, this is a charge on revenue and would otherwise have to be allowed as a deductible business expense even if 100% of the units generated were accounted for. To sum up, I hold that even if the assessee had disclosed 7% of units retained by MSEDCL as its income, 2% would have to be allowed as a deduction on account of wheeling and transmission charges and 5% being distribution losses would be an allowable business expenses as a charge on the appellant since the same was recovered from them. Hence, no disallowance can be made in respect of deductions made on account of transmission losses and wheeling charges. The appellant succeeds on this ground." 12.6 Aggrieved with such order of the CIT(A) the Revenue is in appeal before us. 13. We have considered the rival arguments made by both the sides. So far as the disallowance of computer development charges and computer maintenance charges u/s.40(a)(ia) for non deduction of tax at source is concerned we find the Ld.CIT(A) gave part relief to the assessee on the ground that the assessee has shown that the computer maintenance expenses were in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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