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2015 (5) TMI 925 - ITAT AHMEDABAD

2015 (5) TMI 925 - ITAT AHMEDABAD - TMI - Disallowance under section 14A - CIT(A) deleted part disallowance - Held that:- the disallowance of ₹ 5,00,000/- made by the AO was on ad hoc estimate basis, and the CIT(A) also sustained ₹ 50,000/- out of the same on ad hoc estimate basis. The DR could not bring any material before us to show that any amount more than ₹ 50,000/- was incurred by the assessee for earning of dividend income. Therefore, we do not find any good reason to in .....

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w, what was the frequency of the transaction in question. It is not the case of the Revenue that any borrowed fund was utilized for acquiring shares or units of mutual funds under consideration. In our considered view, the intention of the assessee at the time of acquiring shares of mutual fund has to be ascertained by taking into consideration all the relevant factors, like utilization of borrowed funds, frequency of transaction, volume of transaction, manner in which the acquisition is reflect .....

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cepting the income shown as short term capital gains. - Decided against revenue.

Disallowance of deduction of preliminary expenses under section 35D - CIT(A) allowed the claim - Held that:- In the instant case, it is not in dispute that the expenditure in respect of which the deduction was claimed by the assessee under section 35D was incurred after 31st March, 1998. Thus, in any view of the matter, the deduction is to be allowed to the assessee for five years only. The assessee has s .....

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ower authorities on this issue, and remit the matter back to the file of AO for deciding the issue afresh in the light of the above cited decision of CIT Vs. Yokogawa India Ltd.[2011 (8) TMI 766 - KARNATAKA HIGH COURT ] after verifying the facts of the instant case. It is needless to mention that the AO shall allow reasonable opportunity of hearing to the assessee before deciding the issue afresh. - Decided in favour of Revenue for statistical purpose. - ITA No. 3906/Ahd/2008, ITA No. 1370/Ahd/2 .....

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medabad dated 25.2.2009 for the Asstt.Year 2006-07. 2. The ground no.1 of the appeal of the Revenue for the Asstt.Year 2005-06 is directed against the order of the CIT(A) deleting the disallowance of ₹ 4,50,000/- out of total disallowance of ₹ 5,00,000/- made by the AO under section 14A of the Act. 3. Brief facts of the case are that the in the Asstt.Year 2005-06, the AO observed that the assessee has earned exempt dividend income of ₹ 15,47,57,591/-. The business of the assess .....

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re capital and reserve. However, the AO observed that the part of the employees cost and administrative expenses is attributable to earning of dividend income, and therefore, made a lumpsum disallowance of ₹ 5,00,000/-. 4. On appeal, the CIT(A) in the Asstt.Year 2005-06 observed that the AO has made the addition merely on estimation. The CIT(A) observed that the expenses incurred on account of salary to staff, stamp duty, transfer fee and other such expenses do relate to earning of dividen .....

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sed the orders of the lower authorities and material available on record. We find that the disallowance of ₹ 5,00,000/- made by the AO was on ad hoc estimate basis, and the CIT(A) also sustained ₹ 50,000/- out of the same on ad hoc estimate basis. The DR could not bring any material before us to show that any amount more than ₹ 50,000/- was incurred by the assessee for earning of dividend income. Therefore, we do not find any good reason to interfere with the estimate made by t .....

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Year 2006-07, the AO has made disallowance at the rate of 5% of the expenditure of ₹ 1,35,97,939/-. 8. The CIT(A) held that the expenditure incurred on account of salary to staff, stamp duty, transfer fee and such other expenses do relate to earning of dividend income, and therefore, a part of such expense needs to be apportioned to earning of dividend income, and in view of that he held that the disallowance made under section 14A amounting to ₹ 6,79,897/- was justified and no inter .....

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DCIT, Tax Case (Appeal) No.2621 of 2006 order dated 15.10.2012 confirmed the disallowance made at the rate 2% of dividend income earned during the year as fair and reasonable. We, therefore, following the same, are of the considered opinion that it shall meet ends of justice to restrict the disallowance under section 14A at the rate of 2% of the dividend income earned during the year by the assessee. We, therefore, set aside the order of the lower authorities on this issue, and direct the AO to .....

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al of the Revenue in the Asstt.Year 2005-06 is directed against the order of the CIT(A) accepting the gain as short term capital gain and not business income as treated by the AO of an amount of ₹ 30,65,299/- u/s.111A of the Act. 12. Brief facts of the case are that the AO Asstt.Year 2005-06, observed that the assessee has shown short term capital gain of ₹ 30,65,299/- and ₹ 3,39,98,565/-. The AO observed that the business of the assessee was of dealing in shares and securities .....

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reason that a perusal of the Schedule-5 of the balance sheet shows that almost entire stock-in-trade comprises of shares of same subsidiary company which were appearing in the investment portfolio, and there was large transactions in mutual funds involving substantial sums of money, and therefore, in view of the fact that the business of the assessee is dealing is shares and securities, and the assessee is engaged in large volume of transactions in shares and securities, the short term capital g .....

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The intention of the assessee in holding shares and units of mutual funds as per schedule-IV as investment was clear. In view of the above stated facts, and the fact that the assessee has shown the said income on sale of shares as capital gain in earlier years, which has been accepted by the department, relying on the case law cited by authorized representatives of the assessee, he was of the opinion that motive of the assessee was clear and is certainly not to carry out business of trading in s .....

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by the AO, the assessee replied that its major investment were in the form of share of subsidiary companies, which were not in the nature of stock-intrade and the frequency of transaction was not very high, and that the frequency of the buying and selling could not be used to categorise the income as business income. However, the AO did not accept the explanation of the assessee and observed that almost entire stock-intrade comprises of same subsidiary companies, which were appearing in the inv .....

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hares and units in mutual funds have been shown as investments from earlier years consistently. The other shares which the assessee had traded and held as stock-in-trade have been show as stock in trade in Schedule-VI to the balance sheet. The intention of the assessee in holding shares and units of mutual funds as per schedule-V as investment is clear. Further, CIT(A) observed that similar issue came up before him in the immediately preceding assessment year, and it was held that the AO was not .....

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Further, it has been consistently shown by the assessee as capital gains. 17. We have heard rival submissions and perused the orders of the lower authorities and material available on record. In the instant cse, the assessee is holding an investment company. The assessee in its balance sheet disclosed certain acquisition of shares as stock-in-trade, and certain shares of mutual funds as investment. In other words, the assessee claimed itself as a trader in shares as well as, as an investor in sh .....

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in the hands of the assessee. 18. On appeal, the CIT(A) held that merely the volume cannot determine the character of the income, and he considered that the frequency were not very high and the intention of the assessee to hold shares and units as investment was clear from the fact that these shares and mutual funds were reflected as investment in the audited balance sheet of the assessee. The CIT(A), therefore, allowed the claim of the assessee and accepted the income shown as short term capit .....

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like utilization of borrowed funds, frequency of transaction, volume of transaction, manner in which the acquisition is reflected in the financial statements etc. No single factor is determinative of actual nature of the transaction. In the absence of any material brought before us by the Revenue to show that same shares or the units of mutual funds were frequently purchased and sold, on which short term capital gain was claimed by the assessee, or that no borrowed funds was utilized by the asse .....

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Act. 22. Brief facts of the case are that the AO observed that the assessee has claimed an amount of ₹ 8,03,445/- as preliminary expenditure in the computation of income. From a perusal of the details filed by the assessee it s seen that an amount of ₹ 7,93,340/- was paid on account of ROC fees for increase in authoriszed capital. As per the provision of section 35D, such payment of ROC fees for increase in the authorized capital is not a deductible expenditure. The AO also observed .....

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y or otherwise of the expenditure has been decided in the first year, and the deduction was allowed in the subsequent year on the basis of the amount determined in the first year. Therefore, no disallowance should be made. 23. The AO observed that the reply of the assessee is not acceptable. Even if the expenditure has been allowed in earlier years, the AO is not bound to accept such allowance in subsequent year also. The proceedings under the Income Tax Act are not covered by the principle of r .....

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assessee as ROC fees for increase in authorized capital was not allowable under section35D as held in the case of CIT Vs. Hindustan Inspecticides Ltd., 250 ITR 338 (Delhi). He, therefore, disallowed deduction of ₹ 7,93,340/- and added the same to the total income of the assessee. 24. On appeal, the CIT(A) held that the assessee had submitted that it had incurred expenditure in the year 1999-2000, and this is the sixth year, and according to the provision of section 35D, it should be allowe .....

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s been allowed in assessments of earlier years. 25. The DR supported the order of the AO, whereas, the AR of the assessee submitted that the principle of res judicata is not applicable in the income -tax proceedings, but consistency should be maintained in the income-tax proceedings. He relied on the decision of the Hon ble Supreme Court in the case of CIT vs. Excel Industries Ltd. 358 ITR 295. Therefore, he submitted that the order of the CIT(A) should be confirmed the ground of the appeal of t .....

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amount in the Asstt.Year 2006-07 being 7th year. 27. On appeal, the AO disallowed this expenditure for both the years under consideration on the ground that the expenditure incurred was on account of filing fees paid to Registrar of Companies which does not qualify as preliminary expenditure under section 35D(2) of the Act. 28. On appeal, the CIT(A) allowed the claim of the assessee for both the years on the ground that similar deduction was allowed to the assessee in the earlier years. 29. We .....

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it is not in dispute that the expenditure in respect of which the deduction was claimed by the assessee under section 35D was incurred after 31st March, 1998. Thus, in any view of the matter, the deduction is to be allowed to the assessee for five years only. The assessee has submitted that deduction has already been allowed for five years to it, and of course at the rate of 10% and not at the rate of 20%. Be that as it may, the year under consideration being 6th and 7th year, the deduction und .....

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f assessment proceedings, the AO observed that the assessee has calculated book profit under section 115JB after deducting the share in profit of Torrent Financiers and share of dividend earned and no adjustment to book profit has been made in respect of provision for doubtful loans debited by the assessee in profit & loss account. The AO show caused the assessee as to why the said provision, amounting to ₹ 11 crores should not be added to the book profit, and in, response to the same, .....

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Apollo Tyres Vs. CIT, 255 ITR 273, and contended before the AO that he has limited power of increase or decreasing the book profit, and he has no jurisdiction go behind the net profit shown in the profit & Loss account except to the extent provided in the explanation. The AO did not accept the explanation of the assessee by observing that the AO can adjust the book profit as per Explanation to section 115JB(2), and the addition of provision for doubtful loans to book profit is proposed to be .....

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to the book profit of the assessee. 33. On appeal, the CIT(A) held that the provision for bad debt has made in order to reflect the true state of affairs of the company. The Company has not provided for a contingent liability but in fact it has provided for diminution in the value of an asset i.e. provision for doubtful advances. Further, if the provisions made by the assessee is for the diminution in the value of the assets, it would not be covered by clause (c) of the Explanation below section .....

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igh Court after taking into consideration the decision of the Hon ble Apex Court in the case of Vijaya Bank Vs. CIT, 323 ITR 166 and CIT Vs. HCL Comnet Systems & Services Ltd. 305 ITR 409 and held as under: In the instant case, the debt is an amount receivable by the assessee and not any liability payable by the assessee and, therefore, any provision made towards irrecoverability of the debt cannot be said to be a provision for liability. Therefore, item (c ) of the Explanation is not attrac .....

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uld not fall within item (c) of Explanation (1). It is in that context the appellate Commissioner as well as the Tribunal has granted relief to the assessee. Realising the fatality of the said argument, it is contended now that item (i) cannot amount to satisfaction as provision for diminishing in the value of assets is substituted, if case of the assessee falls under item (c). In meeting the aforesaid case, the assessee brought on record the judgment of the Apex Court in the case of Vijaya Bank .....

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y the Explanation stood inserted. Prior to the Finance Act, 2001 many assessees used to take the benefit of deduction under section 36(1)(vii ) by merely debiting the impugned bad debt to the profit and loss account and, therefore, the Parliament stepped in by way of Explanation to say that a mere reduction of profits by debiting the amount to the profit and loss account per se would not constitute actual write off. The Apex Court accepted the said legal position. However, it was clarified that .....

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he said amount representing bad debt or doubtful debt cannot be added in order to compute book profit. Therefore, after the Explanation the assessee is now required not only to debit the profit and loss account but simultaneously also reduce the loans and advances or the debtors from the assets side of the balance sheet to the extent of the corresponding amount so that, at the end of the year, the amount of loans and advances/debtors is shown as net of the provisions for the impugned bad debt. T .....

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d the orders of the lower authorities and material available on record. In the instant case, the assessee debited ₹ 11 crores in its profit & loss account under the head provision for bad debts . The AO while computing the book profit of the assessee under section 115JB of the Act added back the aforesaid provision by invoking the provision of clause (c) of Explanation (1) of Section 115JB of the Act. The said clause (c) provides for amount set aside as provision for meeting liabilitie .....

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diminution in the value of any assets for calculating the book profit under section 115JB of the Act. The Hon ble Karnataka High Court had an occasion to interpret the scope of above cited clause (i) in the case of CIT Vs. Yokogawa India Ltd. (supra) wherein it was held as under: In the instant case, the debt is an amount receivable by the assessee and not any liability payable by the assessee and, therefore, any provision made towards irrecoverability of the debt cannot be said to be a provisio .....

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ade which is in the nature of diminution in the value of any asset would not fall within item (c) of Explanation (1). It is in that context the appellate Commissioner as well as the Tribunal has granted relief to the assessee. Realising the fatality of the said argument, it is contended now that item (i) cannot amount to satisfaction as provision for diminishing in the value of assets is substituted, if case of the assessee falls under item (c). In meeting the aforesaid case, the assessee brough .....

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would not constitute actual write off and that was the very reason why the Explanation stood inserted. Prior to the Finance Act, 2001 many assessees used to take the benefit of deduction under section 36(1)(vii ) by merely debiting the impugned bad debt to the profit and loss account and, therefore, the Parliament stepped in by way of Explanation to say that a mere reduction of profits by debiting the amount to the profit and loss account per se would not constitute actual write off. The Apex Co .....

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