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G.E. Capital Services India And Others Versus Addl. CIT, Rage 12, New Delhi And Others

2015 (6) TMI 526 - ITAT DELHI

Disallowance of expenditure incurred for purchase of application software - Held that:- In the present case, the A.O. had noted in the assessment order that expenditure was incurred on application software and, therefore, assessee cannot be said to have incurred expenditure on customized software. In the case law of CIT (A) Vs Asahi India Safety Glass Ltd. [2011 (11) TMI 2 - DELHI HIGH COURT] relied upon by Ld. A.R. the Hon’ble Court has held that expenditure incurred on application software is .....

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and not in respect of any debt which may be written off in its accounts - Held that:-CIT(A) has held that only when proceedings in BIFR are concluded in the case of Grapco and after recovering whatever is recovered , the dues of assessee can be ascertained. However from the order of TRF Ltd. VSs CIT [2010 (2) TMI 211 - SUPREME COURT ], we find that Hon’ble Apex Court has held that for a claim of bad debt, the assessee has to only establish that debt has been written off and it was not necessary .....

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ff of debt was not examined by A.O. However, in the present case, the debt has actually been written off therefore, relying upon the ratio of judgement of Hon'ble Supreme Court, we hold that the claim of assessee in respect of bad debt written off is allowable - Decided in favour of assessee.

Disallowance u/s 14A - Held that:- CIT(A) has held that out of internal accruals of s.248 crores for the year ended 31.03.1996, and ₹ 253 crores in the year ended 31.03.1997, the assessee h .....

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ithout noting down incurring of any expenditure @ 25% of dividend income whereas Ld. CIT(A) has restricted the disallowance to the extent of 5% of gross total income - Held that:- Both the authorities have not made any finding of fact of incurring of any expenditure in this respect. Hon’ble Punjab & Haryana High Court in the case of Hero Cycles Ltd. [2009 (11) TMI 33 - PUNJAB AND HARYANA HIGH COURT] has held that disallowance u/s 14A requires finding of incurring of expenditure and where it is f .....

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nce of incurring of any expenditure on day to day basis. - Decided in favour of asseessee.

Disallowance of expenditure incurred by assessee for raising loan by treating the same as deferred revenue expenditure - Held that:- There is no dispute about the fact that assessee had incurred the expenditure and the expenses are not of capital nature, therefore, as per section 37 of Act, these are allowable in the year in which such expenditure has been incurred. The A.O. had relied upon the .....

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tional foreign exchange fluctuation loss - Held that:- As noted by A.O. in his assessment order the loss on account of foreign exchange fluctuation has occurred on account of working capital loans in foreign exchange and therefore, the loss claimed is allowable u/s 37(1) of the Act. See CIT Versus M/s Woodward Governor India P. Ltd.[2009 (4) TMI 4 - SUPREME COURT] - Decided in favour of assessee. - I.T.A. No. 2897 /Del/2007, I.T.A. No. 2807/Del/2007 - Dated:- 10-6-2015 - Shri G. C. Gupta And Shr .....

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ll as by Revenue are reproduced below: A. I.T.A. No. 2897/Del/2007 (Appeal of Assessee): 1. That the Order dated March 23, 2007 passed by the learned Commissioner of Income Tax (Appeals)-XV ["CIT(A)"] is erroneous and bad in law in so far as it has confirmed the additions/disallowances made in the assessment order. 2. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the disallowance of expenses incurred on purchase of software for up .....

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he disallowance of bad debts written off amounting to ₹ 4,49,69,588/-. 3.1 That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding the appellant's claim for bad debts to be premature without appreciating that under the provisions of section 36(1 )(vii) of the Act, a claim for bad debt had to be allowed in the year in which the debt is written off as bad. 4. That on the facts and in the circumstances of the case, the learned CIT (A) erred in up .....

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facts and in the circumstances of the case, the learned CIT (A) erred in upholding addition of ₹ 12,22,63,212/ being expenditure incurred in respect of raising loan funds, by treating the same as Deferred revenue expenditure 5.1 That the learned CIT (A) erred on facts and in law in not appreciating that for purposes of the Act, revenue expenses have to be allowed in full in the year of accrual unless specifically deferred as provided under the Act. B. I.T.A.No. 2807/Del/2007: (Appeal of R .....

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15,00,000/- made u/s 14A on account of proportionate administrative expenses incurred for earning the tax free dividend, to ₹ 2,92,000/- i.e. 5% of the gross dividend, without appreciating the facts on record. 3. On the facts and in the circumstances of the case and in law, the CIT(A) erred in deleting the disallowance of notional foreign exchange fluctuation loss of Rs.l,16,44,767/-, ignoring the fact that the liability is deductible only in the year in which the foreign loans in questio .....

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t of interest ₹ 12,27,50,000/- iv) Disallowance u/s 14A on account of expenses ₹ 15,00,000/-. v) Disallowance on account of payments to club ₹ 48,925/- (this addition was deleted by Ld. CIT(A) and revenue has not challenged it before us). vi) Disallowance of deferred revenue expenditure ₹ 12,22,63,212/- vii) Disallowance on account of provision for foreign exchange loss ₹ 1,16,44,767/- 3. Aggrieved with the additions, assessee filed appeal before Ld. CIT(A) and Ld. .....

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Udyog (92 ITD 119 f(Delh), the earlier decision in first appeal in the appellant's own case or earlier years might not hold good. In the case of Maruti Udyog, the ITAT held as under: - "The issue, as to whether expenditure on acquisition of software was revenue or capital expenditure is no more res integra as it is well settled the expenditure incurred on acquisition of an asset (other than trading asset) is always capital expenditure. Software is a capital asset and is an intangible a .....

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er cent. By, providing higher depreciation, it could not be said that prior to 1-4-2003, it was revenue expenditure, It was always a capital asset Prior to 1-4-2003, the assessee was entitled to normal rate of depreciation which was enhanced to 60 percent by the amendment considering the rapid wear and tear. Therefore, the expenditure was incurred on acquisition of capital assets and, thus, it was a capital expenditure. Resultantly, the same could not be allowed as' revenue expenditure. In v .....

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not a debt is bad is a 'question to be determined objectively. It is sufficient if on a bonafide assessment, if it is presumed that that the debtor is unlikely to make the payment of debt, that the assessee may write off the amount as Irrecoverable in terms of section 36(1 )(vii) read with section 36(2) It is correct that length of time the debt is outstanding would be a matter for critical consideration. Similar consideration would be given to the information available with the debtor as to .....

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been admitted by the BIFR equally relevant is the issue as to whether there are no assets from which the debt can be recovered in the foreseeable future. The issue is critical in so far as the' loan advanced by the appellant to Grapco on 27 09.95 was secured against collateral. 3.4 The collateral schedule to the loan agreement contains the details of the following assets which have been pledged against the loan. The assets are (1) Breton - slab polishing machine - 1 No. - Location at Banglo .....

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erms of the. agreement whereby the debtor "hereby gives, grants, assigns, hypothecated and charges (by way of first charges as continuing security) to secured party". In case of default, the secured party (the appel/ant) has the right in terms of clause 9 (b) of the loan agreement to enter the premises where the collateral is kept and to take possession remove the said collateral from the premises and also to effect sales thereof. It has been specifically mentioned that in the case of .....

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actory at Balasore would not be verified since they were not allowed entry into the factory The report is dated 02.06.2000. Thereafter MIs Fund point said to be service provider for recovery of GE Capital, dues from the party reported vide letter dated 24.02.2003 that on Inspection or Balafore factory, they could locate 2 machines i.e Budiarn Brezing / Tensioning Machine and single head automatic polishing machine. That other assets at Balasore site "have been either transferred to their Ba .....

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d against assets, some of which have been located. Now the legal remedies available for instituting recovery proceedings against creditors and proceeding to recover the dues are different in case of secured and unsecured creditors. In case of recovery of dues against secured creditors, the recovery procedures under-the Code of Civil Procedure are available for enforcement of contractual rights, mortgage, hypothecation, lien etc. In fact under the Code, there is a right of direct private sale of .....

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an agreement with Grapco. I agree with the views of the A.O. that only when the proceedings in BIFR are concluded in the case of Grapco and from whatever recoverable asses, the dues are ascertained and apportioned among lenders to Grapco then only the bad debts of the appellant could be said to have been rationally quantified with certitude. Till the finalization of the proceedings at the BIFR the bad debts claims of the appellant against dues of Grapco are premature. The addition is sustained g .....

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ove mentioned narration of figures of investment and internal accrual, the AO goes on to elaborate at para 6.2.2. the logic of disallowance in the appellant s case as under: "The assessee's contention does not appear to be acceptable. For F.Y. 99-00, the increase in accrual is only about. ₹ 41.00 crores, whereas increase in investment is about ₹ 54.00 crores. The borrowed funds on the other hand have increased from ₹ 226.17 crores to ₹ 317.56 crores. The assessee .....

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in internal accruals, since the quantum of increase in internal accrual was not sufficient to accommodate the increase in investment. Now from the figure of internal accrual as on 31.03.99 and 31.03.00 given at para 6.2.1 at ₹ 413.00 crores and ₹ 472 crores especially the increase in internal accrual would be ₹ 59.00 crores and in that view the increase in internal accrual would have been sufficient to explain the source of investment newly made from the year at ₹ 54. 00 .....

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Del.), it has been said "The words "in relation to" income which is exempt under the Act, no doubt appear it be broad at first impression but on deeper examination, and read in conjunction with the word "incurred". it seems that these are restrictive words, restricting the power of the AO to estimate a part of the expenditure incurred by the assessee as relatable to exempted income. It seems that implicit in the expression "in relation to" is the concept that t .....

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le income". Similar view in the context of section 80M is available in the case of Punjab State Industrial Corp. Ltd. Vs DC IT 102 ITD 1 (Chd.)(SB). I agree with the views of the appellant that since the dividend received during the year under appeal related to investment of AY. 96- 97 & 97-98, the AO was not right in deciphering the source of all investments (Including the investment for A. Y. 96-97 & 97-98) ' with reference to the availability of own funds and borrowed funds a .....

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77; 34.99 crores and ₹ 46.93 crores for the respective 2 years, have-not been disputed in any manner anywhere in the assessment order. The figures of internal accruals for the 2 years are 6 times more than the figure of investment for these 2 years, and there should be no apparent presumption against the appellant to hold to a view that the investments for these 2 years arose out of the borrowed funds From an analysis of the appellant's accounts for A Y. 96-97 & 97-98 and the decis .....

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curb the practice to claim deduction of the expenses incurred in relation to exempted income against taxable income and at the same time to avail of a tax incentive by way of claiming exempt income without making any apportionment of expenses incurred in relation to exempt income, That the scheme of the Ad is to charge tax on net income an also allow exemption in respect of net income. As per the said decision, the expression "expenditure incurred by the assessee in relation to income which .....

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the indirect expenses cannot be computed with regard to the earning of exempted income for the purposes of sect.cr 14A. The fact that the appellant has an investment portfolio of ₹ 309.67 crores at the yearend up from ₹ 140.00 crores in the earlier year would fairly suggest that its investment department is fairly robust and active. To Invest in a particular share or financial instrument. to stay invested or to offload tile Investment are strategic decisions, calling for skill, energ .....

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4A. The ground partly allowed. d. Deferred revenue expenditure : 6.1 In the assessment order, it has been said that the appellant has incurred an expenditure of ₹ 35,07,38,065/- on account of raising of loan funds out of which ₹ 2284747853/- has been debited to the P&L account and the balance of ₹ 12,22,63,212/- has been claimed as deduction in the computation The breakup of the expenditure on raising of loan funds during the year are stated to be as under. (a) Debenture Is .....

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and the balance claimed in the computation. (d) Discount on debentures - out of a gross expenditure of ₹ 6.34,42,670/-, an amount of ₹ 2,35,68,058/- has been claimed in the accounts and the balance claimed in the computation. It has been stated by the AO. that the amount of expenditure amortized during the year is proportionate to the period of the fund for the relevant year as compared to the total period for which funds have been raised. It has been stated by the A.O. that discount .....

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nditure on raising of loan funds does not provide any enduring benefit and have been incurred by the appellant for running the business more efficiently and effectively, and as such as allowable u/s 37(1) of the Act. That an expense will be of revenue nature if the same is incurred for running the business or working it with a view to earn profit. The decision in the case of Empire Jute Company Limited vs CIT 24-ITR- 1 (Hon'ble Supreme Court) and India Cement Vs. CIT 68 IR 502 (SC) have been .....

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CIT 82 ITR 363 (SC) have been relied on in support of the appellant's arguments. 6.1 I have examined the issue in appeal. Although it is correct that no one test or principle or criterion is paramount or conclusive or has universal application to decide the question of amortizing such kind of expenditure, ultimately the question will have to depend upon the facts and circumstances of each case. The A. O. has relied on the decision in the-case of Madras Industrial Investment Corporation Limi .....

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benture, the payment is to secure a benefit over a number of years. 'There is a continuing benefit to the business of the company over the entire period. The liability should, therefore be spread over the period of debentures" In the case of Taparia Tools Limited Vs. J.CI.T. 126 Taxman 544 (Bombay) 'he assessee had made payments of interest on non convertible debentures issued by the company The debenture holders had option either to periodically receive interest Or half yearly basi .....

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compared with expenses incurred during the same period, irrespective of actual outflow of cash. Whereas ordinary revenue expenditure incurred only and exclusively for business purposes must be allowed in its entirety in the year in which it was incurred, in the case before the Bombay High Court, it was held that the A.O. was justified to spread expenditure over life of the debenture, because allowing expenditure in one year could give a distorted picture of profit of a particular year. Similar d .....

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nterest expenditure or expenses related to raising of loan funds have been allocated in the accounts pari pasu with the period of user for the relevant year in question, it cannot be the case that the method of accounting regularly followed by the appellant has been rejected by the department. In fact the revenue has supported the appellant in its presentation of accounts relating to spread over of expenditure involving raising of loan funds. The appellant has identified the interest and finance .....

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ing to the appellant's claim under that Head (within deferred revenue expenses), the decision of the Supreme Court squarely applies. The appellant would not be entitled to its claim of expenditure in respect of discount on debentures. The issue as to whether rest of the expenses within deferred revenue expenditure should be viewed in the same light as per the decision of Supreme Court in the case of Madras Industrial Syndicate is required to be examined as to what are the constituents, conno .....

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and also carrying an interest. It is like a certificate of loan or a loan bond evidencing the fact that the company is 1iable to pay a specified amount with interest. Similarly in contracting for foreign exchange loan forward contracts are obtained-to insulate the party obtaining the loan from any loss in discounting on the appointed day i.e. if a forward contract has not been booked, then the documents / loans will be discounted/paid @ prevailing on the day of discounting / payment. Whatever be .....

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r the definition given in Spicer and Pegler's Book Keeping and Accounts (17th Edition) Page 240. In the same analogy equating discount on debentures to the deferred interest, it has to be said that discount charges for commercial paper and forward cover premium on foreign currency loan are either pure interest (. or deferred Interest) per-se or are in intimately connected with the domestic interest rate, There is full justification to apply the ratio of the decision in Madras industrial Synd .....

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se of Madras Industrial Syndicate in respect of this expense also, I agree with the A.O. that the decision in the case of Madras Industrial Syndicate (225 ITR 802 (SC)) holds good and in that view of the matter, here is no case for allowing the appellant's claim of deferred revenue expenses. The A O. may also refer to the appellant's claim of deferred revenue expenses in respect of debenture issue expenses. There is a specific provision in sec. 35-D dealing with this claim and the same h .....

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in schedule 11 to the audited accounts amounting to ₹ 1,16,44,767/- has been stated to be in terms of the appellant's own accounting policy. At para vii to Schedule 15 (Notes to the Account), the auditors state that borrowings in respect of which no forward cover has been taken are restated at the exchange rate prevailing on the balance sheet date .. Exchange differences if any on account of restatement of liability are dealt with in the P & L a/c. Other foreign currency transactio .....

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version into another currency such profit or loss will ordinarily be trading profit or loss IT the foreign currency is held by the assessee on the revenue account or as a trading asset or as a part of circulating capital embarked in the business But if on the other hand the foreign currency is held as a capital asset or as fixed. capital, such profit or loss will be of capital nature. In the case of ONGC Ltd. Vs DCIT 83 ITO 151 (Delhi) there was a gain in one year on account of appreciation of I .....

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ncy. Therefore the loss incurred is a fait accompli and not a notional one. The Tribunal inter alia stated that there would be no reason for disallowing the claim of forex loss on the sole ground that the loss is notional. In the appellant's case, the system of accounting is mercantile. The system brings into debit expenditure, the amount for which a legal liability has been incurred before it is actually disbursed and brings into credit what is due, immediately as it become due and before i .....

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agree with the submissions of the appellant and accordingly hold that the loss arising on foreign exchange fluctuation has arisen on revenue account or as a part of the circulating capital of the appellant, embarked in its business, and such loss is not contingent. The ground is allowed. 4. Aggrieved, both the parties are in appeal before us. 5. At the outset, Ld. A.R. invited our attention to a copy of application filed for permission to file additional grounds of appeal and submitted that A.O. .....

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assed by senior member and, therefore, it cannot be said that the order was passed on 06.05.2015. However, keeping in view the entirety of facts, we allow the admission of additional ground of appeal as the non admission of additional ground will cause irreparable harm and injury to the assessee whereas, it will not create any inconvenience to the Department. Moreover, we find that this ground is based on record and the claim of tax credit was made through income tax return of the assessee. 6. L .....

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nditure, incurred for purchase of application software, which the A.O. had disallowed holding the same to be of capital in nature. Ld. A.R. submitted that similar allowance was allowed to assessee in 1996-97 to 1999-2000 and even for Assessment Year 1997-98, Hon'ble Delhi High Court in the case of assessee itself had dismissed the appeal of revenue and in this respect, our attention was invited to paper book pages 12-14 of compilation of judgements. Ld. A.R. submitted that reliance placed by .....

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gly placed his reliance on the orders of authorities below and submitted that specific rate of depreciation is allowed on software and, therefore, it is a capital asset eligible for depreciation at specified rate as provided in the Act. 9. We have heard rival parties and have gone through the material placed on record. We find that Ld. CIT(A) himself supported a finding that in earlier year, the assessee was allowed deduction on account of software by ITAT and we further find that during the yea .....

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ncurred expenditure on customized software. In the case law of CIT (A) Vs Asahi India Safety Glass Ltd. 203 Taxman 277 relied upon by Ld. A.R. the Hon ble Court has held that expenditure incurred on application software is a revenue expenditure. In the present case as noted by A.O. the expenditure was incurred on application software. Therefore, respectfully following the Hon'ble Delhi High Court, we hold the expenditure incurred on application software to be revenue in nature and therefore, .....

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tion in disallowing the write off of bad debts, Ld. A.R. submitted that the A.O. had disallowed the claim holding that loan given by assessee has not fully become irrecoverable as the loanee was not declared BIFR Company and the case was pending with BIFR. Ld. A.R. submitted that the A.O. had held that till the final conclusion was pending before BIFR there was chance that assessee could get a part of amount and therefore, loan cannot be said to have become irrecoverable. In this respect, Ld. A. .....

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and there was a chance of recovery of at least partial amount and therefore, loss on account of bad debts was not ascertained. In view of the fact that debt had not become bad, therefore, he highly placed reliance on the orders of authorities below. We have heard rival parties and have gone through the material placed on record. From the facts of the case, we observe that the assessee is a NBFC and advancing loans is one of the main objects of the company and the assessee had advanced loan to o .....

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debts which is written off as irrecoverable in the accounts and not in respect of any debt which may be written off in its accounts. Both the authorities below has held that primary condition for allowing the bad debt is that it should have become bad and only then it can be written off as irrecoverable. Ld. CIT(A) has held that only when proceedings in BIFR are concluded in the case of Grapco and after recovering whatever is recovered , the dues of assessee can be ascertained. However from the .....

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efore, as per the Hon'ble Supreme Court decision, the action of writing off of debt was sufficient to claim the loss. In the judgements relied upon by Ld. A.R., the Hon'ble Supreme Court had remitted back the claim of bad debt to A.O. as in that case, the facts of writing off of debt was not examined by A.O. However, in the present case, the debt has actually been written off therefore, relying upon the ratio of judgement of Hon'ble Supreme Court, we hold that the claim of assessee i .....

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additions on account of interest expenses. In respect of expenses, he has partly allowed relief by holding 5% of gross dividend income as reasonable expenses for earning the income. The assessee is now in appeal for upholding of amount of ₹ 2,92,500/- which Ld. CIT(A) has upheld for expenses and revenue is in appeal for deletion of addition of ₹ 12,27,50,000/- on account of expenditure of interest Ld. A.R. submitted that the assessee had received an amount of dividend as ₹ 58,4 .....

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page 35. Ld. A.R. further submitted that the assessee has not incurred any interest expenses in order to make investments in these investments as the assessee had invested out of cash accruals and that too in earlier years. He further argued that no notional deduction in terms of administrative expenses can be made in the absence of any finding of actual incurring of expenditure; the Ld. A.R. relied upon the following case laws: a) CIT Vs Hero Cycles Ltd. 323 ITR 518 b) CIT Vs Taikisha Engineer .....

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by various judgements. 11. Ld. D.R. on the other hand submitted that for earning exempt income, expenditure has to be incurred and provisions of Rule 14A are mandatory in nature and, therefore, the A.O. has rightly disallowed the same u/s 14A of the Act. 12. We have heard rival parties and have gone through the material placed on record. We find that in the year under consideration, there is no investment in the shares and it is also undisputed fact that dividend was earned from two companies wh .....

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6, and ₹ 253 crores in the year ended 31.03.1997, the assessee had made investment of ₹ 34.99 crores and ₹ 46.93 crores in these two years, which means that the figures of internal accruals for two years was six times more than the figure of investments in these two years. Therefore, relying upon the decision of ACIT Vs Eicher Ltd. in 101 TTJ 369, Ld. CIT(A) has rightly held that disallowance on account of interest was not applicable to the assessee. 13. Ld. D.R. was not able t .....

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any expenditure in this respect. Hon ble Punjab & Haryana High Court in the case of Hero Cycles Ltd. 323 ITR 518 has held that disallowance u/s 14A requires finding of incurring of expenditure and where it is found that for earning exempt income, no expenditure has been incurred, disallowance u/s 14A cannot be made. Ld. A.R. has also invited our attention to para 28 of Maxopp Investments case decided by Hon'ble Delhi High Court and has argued that the Hon'ble High Court has held that .....

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s where assessee claims that no expenditure has been incurred in relation to income which does not form part of total income under the said act. In other words, sub-section (2) deals with cases where the assessee specifies incurrence of some expenditure in relation to income which does not form part of total income whereas sub-section (3) applies to cases where the assessee asserts that no expenditure had been incurred in relation to exempt income. In both the cases, the A.O. should be satisfied .....

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income which does not form part of total income under the Act in accordance with the prescribed method. While rejecting the claim of assessee with regard to expenditure or no expenditure as the case may be, in respect of exempt income, the A.O. would have to indicate cogent reasons for the same which has not been done in the present case. Therefore, relying upon the ratio of Hero Cycles Ltd. 323 ITR 518, we hold that without recording of finding of fact as to the incurring of some expenditure, .....

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missed. 15. The last ground of appeal is regarding disallowance of expenditure incurred by assessee for raising loan by treating the same as deferred revenue expenditure. The Ld. A.R. submitted that during the year, the assessee had incurred an expenditure of ₹ 35,07,38,065/- for raising loan funds out of which ₹ 22,84,74,853/- had been debited to P & L account and the remaining amount of ₹ 12,22,63,212/- had been claimed as deduction by way of adjustment in computation of .....

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hat the issue is squarely covered in favour of assessee by the order of Tribunal in assessee s group company case for Assessment Year 1996-97 and 1997-98 vide order dated 30.01.2015 placed at paper book pages 189-213 of compilation of judgements. Ld. A.R. submitted that in the case of assessee s group companies also i.e. SBI card and Payment Services Pvt. Ltd., similar issue had been decided in favour of assessee by Hon'ble High Delhi Court and a copy of which was placed at paper book pages .....

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to be disallowed while calculating the business income of the assessee. Ld. A.R. submitted that the expenses incurred were not of personal nature neither they were of capital nature and there is no class of deferred revenue expenditure in the income tax Act. He submitted that Ld. A.O had relied upon the decision in case of Madras Indl. 225 ITR 802 (S.C.) whereas in the case of Madras Indl. the Hon ble Court had decided the issue in favour of revenue as in that case, the assessee had claimed onl .....

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, all expenditure incurred wholly and exclusively for the purpose of business are allowed in the computation of income unless they are of capital nature or of personal nature. There is no mention of deferred revenue expenditure in the income tax Act. In the case of Mad. Industrial as relied upon by Ld. CIT(A), the issue was decided in favour of revenue on account of the fact that assessee itself had claimed proportionate amount in the P & L account and the Hon ble Court had held that in such .....

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have considered the rival submissions and have perused the record of the case. We find that there is no concept of deferred revenue expenditure under the Income Tax Act except under certain specific, provisions like section 35D. Therefore, unless statutory provision is there to defer the revenue expenditure over a period, the entire amount is to be allowed in the year in which it is incurred for running the business as per section 37 of the Income Tax Act. Ld. CIT(A) has relied on the decision .....

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his issue is no more Res-integra in view of following decisions: 1. 335 ITR 29 in the case of CIT vs. Casio India Ltd., wherein the Hon'ble Delhi High Court held that direct selling expenses, stamping fee and commission paid to the selling agents in the case of assessee who was financing the higher purchase of vehicles and homes and the period of such financing were ranging from less than 1 year upto 5 years was allowable in the year in which the expenditure was incurred and not over 5 years .....

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nexus between the advertising expenditure and the business of the assessee and that unless the assessee made its products known in the market, its business would suffer. On appeal by the Department: Held also, that the questions whether the Tribunal was correct (i) in deleting the addition made by the AO by amortizing the expenditure towards the professional fee paid towards the project of supply chain management and human resource revenue-engineering by allowing deduction of one-fifth as expend .....

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ion Ltd. vs. CIT, MANUISCI049311997 : (1997)225 1TR 802 (SC) was examined and distinguished in CIT vs. Industrial Corporation of India MANUIDEl252112009 (2009) 185 Taxman 296 (Delhi) and it was held: 22. . .. The Ld. Counsel for the Revenue had strongly argued that matching concept is to be applied, as per which part of the expenditure had to be deferred and claimed in the subsequent years and, therefore, approach of the AO was correct. However, this argument overlooks that even LIZ Madras Indus .....

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me as was justifying such spread. It was a case of issuing debentures at discount; whereas the assessee had actually incurred the liability to pay the discount in the year of issue of debentures itself The Court found that the assessee could still be allowed to spread the said expenditure over the entire period of five years, at the end of which the debentures were to be redeemed. By raising the money collected under the said debentures, the assessee could utilize the said amount and secure the .....

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asure. In that case, the SC noted that by decided cases, the courts evolved various tests for distinguishing " between the capital and revenue expenditure but the test is paramount or conclusive. Every case has to be decided on its facts keeping in mind the broad picture of whole operation in respect of which the expenditure has been incurred. At the same time, a few tests formulated by the courts were taken note of One such test which was specifically spelled out and may be relevant for ou .....

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enditure, even if incurred for obtaining advantage of enduring benefit, may, none the less, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application .....

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lly without regard LO the particular facts and circumstances of a given case. ITA Nos. 2808/D/11, 1293/D/12, 1047/D/12, 3977/D/10 & 2470/D/11 22 6. It was held that the claim of the Revenue that the revenue expense should be deferred in the absence of a statutory' provision or spread over some years cannot be accepted. In the case of Commissioner of Income" Tax vs. Casio India Ltd. MANUIDE12405120II : (2011) 335 ITR 196 (Del.), reference was made to the decision in the case of Citi .....

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ferred revenue expenditure. Once the assessee claims the deduction for the whole amount of such expenditure, even in the year in which it is incurred, and the expenditure fulfils the test laid down u/s 37 of the Act, it has to be allowed. Only in exceptional cases, the nature mentioned in Madras Industrial Investment Corporation Ltd. [1997J 225 ITR 802 (SC), the expenditure can be allowed to be spread over, that too, when the assessee chooses to do so. " 2. 338 ITR 177, Cyber Media (India) .....

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rved as under: 8.4 "This leads us with the only question as to whether it is permissible for the assessee to claim the entire expenditure as revenue expenditure while filing its return of income, while on the other, under the Companies Act, adopted a method of accounting wherein only part of the expenditure in question was debited to the profit and loss account. The issue, in our considered opinion, is covered in favour of the assessee and against the revenue by a number of decisions which .....

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Though the assessee has written off the expenditure in its books of account over a period of five years, it must be allowed ill its entirety in the year in which it was incurred, if it is revenue expenditure and if it is wholly and exclusively incurred for the purposes of business. The assessee had launched a new product and incurred heavy advertisement expenditure. The period for which the assessee can be said to have secured benefit by incurring this expenditure cannot be reasonably estimated .....

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d in this year. The disallowance of ₹ 1,03,63,401/- made by the Assessing Officer on account of advertisement expenditure is deleted. " It is well settled that the entries in the books of account cannot be the basis whether a receipt is taxable or not or whether expenses are allowable as a deduction or 110t. Courts are compelled to go by the true nature of receipts and not to go by the entries made in the books of account. If any authorities are required to be cited on this case on th .....

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in which such expenditure has been incurred. The A.O. had relied upon the judgement of Madras Industrial Corpn. for disallowing a part of expenditure. However, in the judgement of Madras Industrial Investment, the Hon ble Court had held that expenditure can be spread over a period of time provided the assessee decides to do so and therefore, from the above judgement it can be concluded that right to claim deferred revenue expenditure is given to assessee and not to revenue. In view of the above .....

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IT(A) by which he had deleted an addition of ₹ 1,16,44,707/- which was made by A.O. on account of disallowance of notional foreign exchange fluctuation loss. Ld. D.R. had relied upon the order of A.O. Ld. A.R. submitted that the assessee had debited the aforesaid amount in the P & L account on account of year end provision for change in exchange rate in respect of outstanding liability on account of working capital loans in foreign exchange. He submitted that the above debit in P & .....

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n the case of CIT Vs Woodward Governors India (P) Ltd. 312 ITR 254. 21. We have heard rival parties and have gone through material placed on record. We find that as per accounting policy, the assessee is following mercantile system of accounting and the assessee had restated the liability on account of working capital loans at the balance sheet date on the basis of exchange rate prevailing on balance sheet date and had debited the difference to p & l account. The A.O. has disallowed this cla .....

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epartment before us was that the word "expenditure" in section 37(1) connotes "what is paid out" and that which has gone irretrievably. In this connection, heavy reliance was placed on the judgment of this court in the case of Indian Molasses Company P. Ltd. (1959] 37 ITR 66. Relying on the said judgment, it was sought to be argued that the increase in liability at any point of time prior to the date of payment cannot be said to have gone irretrievably as it can always come b .....

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lity which does not crystallize till payment. In that case, the Supreme Court was considering the meaning of the expression "expenditure incurred" while dealing with the question as to whether there was a distinction between the actual liability in presenti and a liability de futuro. The word" expenditure" is not defined in the 1961 Act. The word "expenditure" is, therefore, required to be understood in the context in which it is used. Section 37 enjoins that any ex .....

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s used the expression ' "any expenditure" in section 37 to cover both. Therefore, the expression "expenditure" as used in section 37 may, in the circumstances of a particular case, cover an amount which is really a "loss" even though the said amount has not gone out from the pocket of the assessee. 14. In the case of M. P. Financial Corporation v. err reported in [1987) 165 14 ITR 765 the Madhya Pradesh High Court has held that the expression "expenditure&q .....

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e allowance to items of business expenditure not covered by sections 30 to 36. This section, according to the learned author, covers cases of business expenditure only, and not of business losses which are, however, deductible on ordinary principles of commercial accounting. (see page 617 of the eighth edition). It is this principle which attracts the provisions of section 145. That section recognizes the rights of a trader to adopt either the cash -system or the mercantile system of accounting. .....

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on as to whether the word "expenditure" in section. 37(1) includes the word "loss" one has to read section 37(1) with section 28, section 29 and section 145(1). One more principle needs to be kept in mind. Accounts regularly maintained in the course of business are to be taken as correct unless there are strong and sufficient reasons to indicate that they are unreliable. One more aspect needs to be highlighted. Under section 28(i), one needs to decide the profits and gains of .....

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sing during the year need to be computed. This is one more reason for reading section 37(1) with section 145. For valuing the closing stock at the end of a particular year, the value prevailing on the last date is relevant. This is because profits/ loss is embedded in the closing stock. While anticipated loss is taken into account, anticipated profit in the shape of appreciated value of the closing stock is not brought into account, as no prudent trader would care to show increased profits befor .....

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account in a continuing business are not brought to the charge as a matter of practice, though, as stated above, loss due to fall in the price below cost is allowed even though such "loss has -not been realized actually. At this stage, we need to emphasise once again that the above system of commercial accounting can be superseded or modified by legislative enactment. This is where section 145(2). comes into play. Under that section, the Central Government is empowered to notify from time .....

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