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2015 (5) TMI 392 - ITAT DELHI

2015 (5) TMI 392 - ITAT DELHI - TMI - Ex-gratia payment disallowed - payments made to ex-employees - Assessing Officer has raised allegation against the assessee that no employee was on the role of assessee company and impugned payment has been made either on behalf of M/s Ranbaxy Laboratories Ltd. or M/s Solrex Pharmacetuicals Company but this allegation has been made on the basis of doubt without bringing out any sufficient material or evidence. In this situation, when the quantum of payment h .....

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stical purposes.

Disallowance of irrecoverable dues from Government department - Held that:- In this regard to issue of allowability of ₹ 2,42,543/- Assessing Officer has pointed out this amount but has not made any addition or disallowance in this regard. But the CIT(A) picked up this issue and made a disallowance by holding that the requires details names of the employees and amount dues is not ascertainable. It was contended by the Ld. DR that there was no issue before the CI .....

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e authorities below and the disallowance and addition has been made in a casual manner. We may point out that if the Assessing Officer has raised same issue it has not made any addition then the CIT(A) cannot picked up this issue making further disallowance and enhancement without adopting due opportunity of hearing of the assessee by simply holding that no details or evidence have been filed. Thus restore to the file of the AO for proper examination and verification - Decided in favour of asses .....

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how that the claim amount of deposit and interest is due from which department, from which date and what efforts have been made by the assessee company to recover this amount. Even the details of departments and the dates of deposit and interest accrued thereon has not been given, therefore, we again find it appropriate, just and proper to restore this issue to the file of the AO for proper verification and examination in the light of observation made by the coordinate Bench of the Tribunal in t .....

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f the Tribunal in the case of Gillette India Pvt. Ltd.(2012 (6) TMI 406 - ITAT DELHI ). We may further point out that the Assessing Officer has noted that the excess amount of ₹ 64,23,249/- debited to P&L account is being added back to the net profit but we are unable to see any basis for this segregation by the Assessing Officer for calculating and making and disallowance u/s 14A of the Act r.w.r. 8D(2) of the IT Rules 1962. At this juncture, we respectfully take cognizance on the decisio .....

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our of assessee for statistical purposes. - ITA No. 1625/Del/2013 - Dated:- 29-4-2015 - Shri B.C. Meena And Shri C.M. Garg JJ. For the Appellant : Sri V.P. Gupta & Anurav Kumar, Advocate Sh. Ameresh Chaudhary & Sh. Subirs,ARs. For the Respondent : Shri Vikram Sahay, Sr. DR ORDER Per Shri C.M. GARG, AM: 1. This appeal has been preferred by the assessee against the order of the Commissioner of Income Tax (Appeals)-XVIII, New Delhi dated 04.01.2013 in Appeal No.315/11-12 for AY 2009-10. .....

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e CIT(A) also erred in discussing the allowability of sum of ₹ 2,42,543/- written off in the Books of Account in respect of which amount there was not even a ground before her as the deduction had been allowed by the Assessing Officer himself. 3.1 That the CIT(A) also failed to appreciate the legal and factual position in respect of disallowance made by the Assessing Officer of ₹ 63,74,000/- under clause (iii) of Rule 80(2) of the Income Tax Rules on account of administrative expense .....

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; 12,60,194/- being the ex-gratia debited as personal cost had been already' disallowed by the Assessing Officer and disallowance has also been separately upheld by CIT(A); b. amount of ₹ 3,25,315/- was debited on account of bad debt written off which in any case cannot be said to be the expenditure incurred during the year in relation to investment activities and out of the same an amount of ₹ 82,722/- had also been separately disallowed by the Assessing Officer and disallowance .....

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x Rules was called for in the facts and circumstances of the case of the appellant. 3.4 That CIT(A) also erred in holding that the Rule 80 does not provide for limiting the amount of disallowance computed by applying the formula specified in the said Rule to the extent of total expenses claimed by the appellant as deduction. 4. That the CIT(A) also erred in upholding the disallowance made by the Assessing Officer for amount of ₹ 82,772/- being the deposits of ₹ 10,000/- each with fou .....

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cordingly deduction for the same is allowable either as bad debts or business loss. 3. Apropos Ground no.1, the Ld. counsel for the assessee submitted that the CIT(A) has erred in not correctly appreciating the facts and the documents submitted by the assessee before the Assessing Officer as well as First Appellate Authority in respect of employment as well as aggregate payment of ₹ 12,60,194/- made to ex-employees Ms. Christen D Mello and Mr. Chetan Madan. Ld. counsel further pointed out .....

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related to deduction made out of amount paid to Mr. Chetan Madan. Ld. counsel further pointed out that the assessee company filed copies of appointment letters of these employees vide written submission dated 28.11.2011 before the AO but the same were not considered properly. Ld. counsel also pointed out PB. Pages 33 to 36 and submitted that Ms. Christen D Mello was appointed as Secretary w.e.f. 6.10.1999 and on her death ex-gratia payment was made to her legal heir/successor Mr. Trevor D Mello .....

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ex-gratia liability either on behalf of M/s Ranbaxy Laboratories or M/s Solrex Pharmaceuticals Company because appointment letters issued by the companies were placed before the AO which were not properly considered. 5. Replying to the above, Ld. Departmental Representative (DR) pointed out that the assessee company claiming the payment of ex-gratia to the heirs of Late Ms. Christen D Mello and appointment letter has been addressed to Ms. Christen D Souza which created suspicion and therefore, t .....

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hristen D Souza and Mr. Chetan Madan before the AO and ex-gratia payment was made to the heirs of Late Ms. Christen D Mello and no evidence regarding payment to Mr. Chetan Madan has been furnished before the authorities below. However, we are of the considered view that the Assessing Officer has raised allegation against the assessee that no employee was on the role of assessee company and impugned payment has been made either on behalf of M/s Ranbaxy Laboratories Ltd. or M/s Solrex Pharmacetuic .....

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s rendered by them and evidence payment of ex-gratia payment as claimed by the assessee for the assessment year under consideration. Accordingly, this issue requires examination and verification at the end of AO and therefore, the same is restored to the file of AO for proper verification and examination in the manner as indicated above and after affording due opportunity of hearing to the assessee and without being prejudice with the earlier assessment order and observation in the impugned orde .....

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tment and ₹ 5000/- each with two Government departments aggregating to ₹ 50,000/- and interest thereon accrued of ₹ 32,722/- could not be recovered due to bad mechanism of working of the relevant government departments. Accordingly, deduction for the same is allowable either as bad debts or as business loss. Ld. counsel further pointed out that the Assessing Officer in Para 5 of the assessment order has noted past dues to their employees amounting to ₹ 2,42,543/- but the .....

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tended that without any examination and verification by the AO or by the CIT(A) herself, the impugned amount cannot be disallowed and hence, the CIT(A) was not justified in holding that the amount does not represented a bad debts as the same amounts were never been claimed as business assets and therefore, on the basis of principal accountancy the same cannot be claimed as bad debts. Ld. counsel also pointed out that the assessee is prepared to submit all required details and evidence to support .....

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t the deposit and interest recoverable from Government department cannot be held as bad debt if the assessee is not making any effort to recover this amount from the relevant government department. 9. In this regard to issue of allowability of ₹ 2,42,543/-, we clearly observed that the Assessing Officer has pointed out this amount but has not made any addition or disallowance in this regard. But the CIT(A) picked up this issue and made a disallowance by holding that the requires details na .....

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out providing any opportunity of being heard for the assessee. Therefore, this issue was not properly adjudicated by the Revenue authorities below and the disallowance and addition has been made in a casual manner. We may point out that if the Assessing Officer has raised same issue it has not made any addition then the CIT(A) cannot picked up this issue making further disallowance and enhancement without adopting due opportunity of hearing of the assessee by simply holding that no details or ev .....

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of ITAT Chennai C Bench in the case of Quintegra Solutions (P) Ltd. Vs. ITO reported in (2012) 75 DTR (Chennai) (Trib.) 302 and submitted that there is no distinction between private debts and government debts for the purpose of Section 36(1) of the Act and if despite of several application the assessee is not able to recover deposit and interest from the Government departments then the same should be allowed as bad debts and the same cannot be disallowed. Ld. DR supported the order of the auth .....

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against bad debts written off. The main grievance of the Revenue is that the assessee has written off even the amounts receivable from the Government of India. The assessee has satisfied all the conditions for writing off of the debts as provided under s. 36(1) of the Income-tax Act, 1961. When the debts are so written off, it has been held by the Hon ble Bombay High Court in the case of Director of IT (International Taxation) vs. Oman International Bank SAOG (2009) 223 CTR (Bom) 382 : (2009) 2 .....

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s such do not make any difference in the present case. The CIT(A)) has rightly deleted the addition. 12. In view of above, we are inclined to hold that the CIT(A) was not justified in holding that the government departmental dues cannot be claimed as irrecoverable, until and unless such a decision is taken by the respective government department and a letter to this effect issued by it. However, we are of the considered view neither the Assessing Officer nor the CIT(A) has examined the issue pro .....

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ht of observation made by the coordinate Bench of the Tribunal in the case of Quintegra Solutions (P) Ltd. (supra). Accordingly Ground No.4 of the assessee is deemed to be allowed for statistical purposes as indicated above. Ground No.3 13. Apropos this ground, Ld. counsel for the assessee drawn our attention to PB. Page 79, the P&L account for the year ended on 31.03.2009, and submitted that the assessee has claimed personal cost of ₹ 12,60,194/- being ex-gratia debited as personal co .....

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ersonal cost of ₹ 12,60,194/- and general and administrative expenses amounting to ₹ 5,38,983/- as per schedule 15 to the statement of the account, which include amount of bad debts written off ₹ 3,25,315/- expenditure on general and administrative remained of ₹ 2,13,668/- actually debited to the profit and loss account. 14. Ld. counsel for the assessee placing rejoinder to the above submission submitted that the disallowance cannot exceed the expenditure actually claimed .....

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and other four companies in to Ranbaxy Drug Ltd. lying their respective share holders and creditors. From the order of the Hon ble Punjab & Haryana High Court dated 06.0.2013 in Company Petition No.80 of 2012 (O&M) connected with company petition no. 57 of 2012, we also observed that the scheme of amalgamation of the assessee company and Solrex Pharmaceuticals company Ltd. has been sanctioned. In the light of these judgments, we in safely noted that the assessee company and M/s Solrex P .....

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m the impugned order of the CIT(A), we note that the addition was upheld the disallowance made by the AO was confirmed by the first appellate authority with the following observation and conclusion:- 5.2 I have carefully considered the assessment order and the submissions filed by the appellant. The facts of the case as per assessment order are that the assessee Company has invested interest bearing funds borrowed from M/s. Ranbaxy Laboratories Ltd. in its partnership firm M/s. Solrex Pharmaceut .....

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n of the matter, I find that any income, whether exempt or not, can only be earned after incurring some expenditure. However, usually such expenditure is not segregated in the accounts of the assessee and remains clubbed with overall administrative financial and other expenses of the business as a whole. If any income is exempt from tax because it is not included in the total income by virtue of section 10 of the Income-tax Act, 1961, section 14A of the Act prohibits allowance of any expenditure .....

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whether the shares are held as investment or they are held on trading account as stock-in-trade. When the expenditure of interest is incurred in relation to income which does not form part of total income, disallowance is made irrespective of the fact whether any income is earned by the assessee or not as Section 14A does not envisage any such exception. The provisions of section 14A, controls the computation of income under the provisions of the Act and has overriding effect over other provisio .....

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evant previous year. On the contrary, the term "in relation to" is wide enough to include in its sweep expenditure both "for making or earning income" and "incurred wholly and exclusively for the purposes of business carried on by the assessee". When there is no income, it cannot form part of anything and certainly it does not, in any case form part of total income. When dividend is not taxable at all, the interest pertaining to that would also not be allowable beca .....

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an assessee claims that no expenditure has been incurred by him in relation to exempt income. The constitutional validity of section 14A read with sub-sections (1), (2) and (3) thereof has since been upheld by the Hon'ble Bombay High Court vide its order dated 12.08.2010 in the case of Godrej & Boyee Mfg. Co. Ltd. vs. DCIT in ITA No. 626 of 2010 and writ petition no. 758 of 2010 after dwelling on the above issue in great details and considering decisions of various Courts and Tribunals .....

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t 1961, as was applicable for Assessment Year 2002-03 is not includible in computing the total income of the assessee. Consequently, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to such income which does not form part of the total income under the Act, by virtue of the provisions of Section 14A(1); ii) The payment by a domestic company under Section 1150(1) of additional income tax on profits declared, distributed or paid is a charge on a component .....

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14A of the Income Tax Act 1961 are constitutionally valid; iv) The provisions of Rule 80 of the Income Tax Rules as inserted by the Income Tax (Fifth Amendment) Rules 2008 are not ultra vires the provisions of Section 14A, more particularly sub section (2) and do not offend Article 14 of the Constitution; v) The provisions of Rule 80 of the Income Tax Rules which have been notified with effect from 24 March 2008 shall apply with effect from Assessment Year 2008-09;" In ACIT v Citicorp Finan .....

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that those were acquired from the funds available in the hands of the assessee at the relevant point of time without taking benefit of any loan. If those shares were purchased from the amount taken in loan, even for instance, five or ten years ago, it is for the assessee to show by the production of documentary evidence that such loaned amount had already been paid back and for the relevant assessment year, no interest is payable by the assessee for acquiring those old shares. In the absence of .....

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i) is more than the total expense claimed by it is not accepted as section 14A is a overriding section and rule 80 does not provide a limit to the amount of disallowance to be computed after applying the formula specified in the said rule. Considering the above, the impugned addition of ₹ 64,23,249/- made by the AO by applying rule 80 read with section 14A of the Act is confirmed. This ground of appeal is dismissed. 17. In view of above, we observed that the CIT(A) has rejected the content .....

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