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2015 (10) TMI 2022 - ITAT KOLKATA

2015 (10) TMI 2022 - ITAT KOLKATA - TMI - Disallowance of Deduction u/s 80HHD – Exclusion of payments received in Indian Rupees from Foreign Airlines and Embassies - Held that:- Once the RBI accepts a particular receipt to have been received in convertible foreign exchange, the deduction u/s 80HHC and 80HHD should be granted to the assessee. In the instant case, admittedly, the assessee had received monies in accordance with the scheme approved by RBI and hence the assessee is entitled for deduc .....

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sessee - Decided in favour of assessee.

Disallowance of deduction u/s 80HHC for sale proceeds of Flight Kitchen Services - Held that:- As relying on assessee’s own case reported in [2011 (8) TMI 411 - CALCUTTA HIGH COURT] the assessee is entitled for deduction u/s 80HHC of the Act in respect of export of food and beverages to out bound flight s of International Airlines and for the proceeds received thereon in convertible foreign exchange and hold that the assessee had complied with t .....

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in the hands of the directors and it is only for the TDS officer to look into the violations, if any, on the same and hence on that ground also, no disallowance of expenditure could be appreciated. We find that the Learned Assessing Officer had made the enti re addition based on surmises and conjectures and made on ad hoc basis. It is well founded proposition that what is apparent is real and the allegation to prove the cont rary is on the person making such allegation. In view of the aforesaid .....

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ands of the assessee for the Asst Year 2002-03 and correspondingly the Learned AO is also directed to grant deduction for the exchange loss due to restatement for the Asst Year 2003-04. - Decided against assessee.

Disallowance of Interest on borrowed funds used for non-business purposes - Held that:- Advances were made by the assessee to various parties during the course of its business and are strategic investment s. We also hold that the borrowed funds were not diverted for non-busi .....

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ble on record, the assessee had advanced monies to various concerns during the course of its business to further strengthen its business interests with the said parties and as a measure of commercial expediency. Accordingly we hold that the action of the Learned Assessing Officer in disallowing a sum is not warranted - Decided in favour of assessee.

Disallowance of legal expenses - Held that:- The legal expenses incurred by the assessee were in respect of payments made to various reno .....

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. Moreover, the assessee had duly filed objections to the remand report that had the original bills for legal expenses been called for by the Learned Assessing Officer, it could have been filed by the assessee. It is also observed that no adverse comments were given by the Learned AO regarding the incurrence of legal expenses except stating that original bills were not filed. In view of this, we have no hesitation in deleting the addition made towards disallowance of legal expenses- Decided in f .....

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nditure for deriving both the incomes and hence disallowance is definitely warranted in terms of section 14A which is brought in the statute book with retrospective effect from 1.4.1962. The disallowance had to be made only on an estimated basis with regard to the expenditure incurred for the purpose of earning tax free income. Respectfully following the judicial precedent, we direct the Learned AO to disallow 1% of dividend income under this issue - Decided against assessee.

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In the case of combined business of an assessee having export business and domestic business, the Legislature intended to have a formula to ascertain export profits by apportioning the total business profits on the basis of turnovers. Apportionment of profits on the basis of turnover was accepted as a method of arriving at export profits. This method earlier existed under the Excess Profits Tax Act and it existed in the Business Profits Tax Act. Therefore, just as commission received by an asses .....

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e to the file of the Learned Assessing Officer to decide the issue afresh on the basis of detail s filed by the assessee following the decision of the Tribunal in assessee’s own case for A.Y. 2000-01 - Decided in favour of assessee for statistical purposes.

Disallowance of Pre-opening expenses as capital in nature relating to Vanyavilas and Udayvilas - Held that:- We hold that the expenditure were incurred for expansion of the same business and not for setting up of the new business. .....

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o Hotel Udayvilas to be treated as revenue expenditure. - Decided against revenue.

Addition on account of provision for repairs and replacement of bad and doubtful debts - Held that:- From the perusal of the agreement between the assessee and Hotel Raj Bilash, it is apparent that the disallowance was made by the AO out of misconception about contractual obligation in earning management fees and arbitrarily added back an amount on account of management fees from Hotel Raj Bilash. It is .....

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s by the assessee for want of finalization of accounts of those managed hotels, and later based on Chartered Accountant’s certificate the correct income is booked and provision al ready made is adjusted accordingly. It may either be increased or reduced. Hence we have no hesitation to delete this addition - Decided against revenue.

Addition on account of advances written off - Held that:- It is seen that the assessee has debited the sum in its profit and loss account under the head “A .....

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ssue.We hold that the Learned CIT(Appeals) had adjudicated this issue and granted relief to the assessee with proper reasoning. Hence we are not inclined to interfere with the Learned CIT(Appeals)’s - Decided against revenue.

Disallowance on account of staff welfare expenses - Held that:- It is seen that the addition has been made only on an ad hoc basis by the Learned Assessing Officer. It is seen that the learned counsel for the revenue had sought to withdraw this ground before the .....

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own case for the Asst Year 2001-02 - Decided against revenue.

Disallowance of repairs, renewals, replacement and advertisement - Held that:- We find that the addition has been made only on an ad hoc basis which is not in accordance with law - Respectfully following the decision of the coordinate bench of the Tribunal on this impugned issue in assessee’s own case for the Asst Year 1996-97 addition deleted - Decided against revenue.

Disallowance of interest u/s 14A on the gro .....

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iaries were made out of strategic investment s, we are not inclined to interfere with the decision of the Learned CIT(Appeals) on this issue deleting the addition - We also hold that dividend, if any, derived from investment in shares of foreign companies made by the assessee would become taxable and hence disallowance u/s 14A would not operate in this regard - Decided against revenue.

Disallowance of depreciation on additions of assets - CIT(A) allowed the claim - Held that:- It is n .....

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ainst revenue.

Computation of deduction u/s 80IA - Held that:- For the purpose of computing deduction u/s 80IA, the deduction u/s 80HHD need not be reduced as both the deductions are independent and accordingly the grounds of appeal raised by the assessee in this regard are allowed. - Decided against revenue. - I.T.A. No. 316/KOL/ 2006, I.T.A. No. 1808/KOL/ 2007, I.T.A. No. 426/KOL/ 2006 - Dated:- 11-9-2015 - Shri Mahavir Singh, Judicial Member and Shri M. Balaganesh, Accountant Membe .....

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e Act ) making various disallowances. Aggrieved, the assessee preferred an appeal before the Learned CIT(Appeals) who gave partial relief to the assessee company against which both the assessee and the Revenue are in appeal before us and hence they are taken up together for the purpose of convenience and disposed off accordingly by a common order. I.T.A. No. 316/Kol/2006 - ASSESSEE s APPEAL 2. Disallowance of Deduction u/s 80HHD - Exclusion of payments received in Indian Rupees from Foreign Airl .....

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8377; 2,20,87,392/- made by the Foreign Embassies received in Indian Rupees and accordingly held that the same should not be considered for deduction u/s 80HHD of the Act as the same was not received in foreign currency. Aggrieved, the assessee preferred an appeal before the Learned CIT(Appeals) who upheld the disallowance of the Learned Assessing Officer. Aggrieved, the assessee preferred further appeal before this Tribunal on the following ground:- 1. That on law as well as on the facts and in .....

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hi ch includes payments, whi ch are recognised by Reserv e Bank of India as payment in foreign exchange and these payments are so considered by Circular No. 60/97-2002 dated 24.12.98 issued by the Joint Di rector General of Foreign Trade, Govt. of India and confirmed by Reserve Bank Of India, Foreign Exchange Department, New Delhi . 2.2. Shri R.N. Bajoria, Senior Advocate, the Learned A.R., appeared on behalf of the assessee and Dr. Adhir Kumar Bar, Learned CIT, D.R., appeared on behalf of the R .....

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Bank of India as Convertible Foreign Exchange for the purposes of the Foreign Exchange Regulation Act, 1973 and any rules made thereunder. He placed reliance on the Ci rcular No. 60 / 97-2002 dated 24.12.1998 issued by the Joint Director General, Foreign Trade, Minist ry of Commerce that the aforesaid two rupee receipts shall be considered by the RBI as payment made in Foreign Exchange and accordingly all the benefits available under EPCG scheme shall be available to the Hotel s. Accordingly, he .....

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ipt with RBI and di rected the Learned Assessing Officer to grant deduction u/s 80HHD i f the RBI confi rms that the said receipt to have come in agreed mode as per the Circular. The Learned AR stated that in the said set aside assessment, the Learned Assessing Officer had granted deduction u/s 80HHD of the Act in respect of the amount received in Indian Rupees by agreeing to the RBI Ci rcular. 2.4. In response to this, the Learned DR argued that the RBI Ci rcular is issued in the context of EPC .....

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foreign exchange for the purpose of Income tax, more so, when the Ci rcular of the Commerce Minist ry seeks for a larger definition of foreign exchange for the purpose of EPCG scheme including the definition of foreign exchange u/s 80HHD as one of the parameters provided for the same. He further argued that similar issue for the Asst Year 2000-01 in ITA No. 490/Kol/2005 and for Asst Year 2001-02 in ITA No. 833/Kol/2005 was restored to the file of the Learned Assessing Officer by this Tribunal. 2 .....

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n the context of EPCG scheme, could be applied for the purpose of granting deduction u/s 80HHD of the Act. In this connection, it is relevant to look into the purpose behind granting deduction u/s 80HHD of the Act by the legislature to an assesssee. From the said intention, it could be easily inferred that the provisions of section 80HHD being beneficial in nature needs to be viewed liberally. Moreover, the provisions of section 80HHD relies on the meaning of convertible foreign exchange in clau .....

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ge, the deduction u/s 80HHC and 80HHD should be granted to the assessee. In the instant case, admittedly, the assessee had received monies in accordance with the scheme approved by RBI and hence the assessee is entitled for deduction u/s 80HHD of the Act in respect of amounts received in Indian Rupees from Foreign Airlines and Foreign Embassies. It is pertinent to note that the Learned Assessing Officer had granted deduction u/s 80HHD of the Act in the set aside assessment proceedings for the As .....

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n services (sale of food and beverages) to out bound flights of Foreign Airlines and claimed deduction u/s 80HHC of the Act and proceeds received thereon in Indian Rupees. As the proceeds were not received in convertible foreign exchange, the Learned Assessing Officer denied deduction u/s 80HHC on the said turnover which was also in line with the decision taken by him in the earlier years which was later upheld upto ITAT. However, the assessee had preferred an appeal against ITAT order before th .....

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ven though the principle of RES JUDICATA has no application in the tax statute and each claim shall be decided on the basis of its own merit. 3. Alternatively, following the principle suggested U/s.158A for avoiding repetitive appeals on the same issue the matter may be referred back to the file of the A.O. with direction to follow the judgment of the High Court for earlier year . 3.2. The Learned AR argued that the assessee had exported food and beverages to out bound flights of International A .....

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those articles and as such, the benefit of deduction u/s 80HHC should be granted. He further argued that in any case, this issue is now squarely covered in favour of the assessee by the decision of the Jurisdict ional High Court for the Asst Year 1998-99 in assessee s own case of EIH Ltd vs CIT reported in (2011) 338 ITR 503 (Cal) dated 12.8.2011 and pleaded that the same may kindly be followed. In response to this, the Learned DR fai rly conceded to the same. 3.3. We have heard the rival submi .....

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(b) Whether on the facts and in the circumstances of the case the sale proceeds receiv ed for supply of such food and beverages was in convertible foreign exchange within the meaning of section 80HHC of the Act? (c) Whether on the facts and in the circumstances of the case your petitioner is entitl ed to the deduction claimed under section 80HHC of the Act? The relevant operative portion of the said judgement is reproduced below:- 13. After hearing the learned Counsel for the parties and after g .....

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treated as payment in convertible foreign exchange within the meaning of the provisions of Section 80HHC of the Act. The word export has not been defined in the Act and thus, the said word is to be interpreted in the light of the language of Section 80HHC of the Act including the explanation added thereto and if the formalities required in Section 80HHC are fully complied with, in our opinion, it is not necessary that all the other formalities prescribed in the Customs Act for export of the arti .....

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volving clearance at any customs station as defined in the Customs Act and at the same time, the Reserve Bank of India treats such transaction in lieu of Indian currency as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder, the transaction should be treated as export out of India for the purpose of Section 80HHC of the Act by virtue of the added Explanations (a) and (aa) quoted above. 15. In this connection, we .....

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or the purpose of Section 80HHC of the Act. 21. Now the most vital question that arises for determination in this appeal is whether the appellant has complied with the conditions prescribed in both the Explanations (a) and (aa) of the Act. 22. We have already indicated that in this appeal we have on the prayer of the appellant admitted some additional pieces of evidence in support of its contention that it has complied with both the above conditions. In spite of giving opportunity to lead eviden .....

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ued by the office of the Commissioner of Customs dated April 13, 2004 certifies that all bonded goods and catering food supplies are carried in a sealed Hl-Lift of M/s. Oberoi Flight Services, the appellant before us, which is escorted by the Customs Preventive Officer on duty, to the Air Crafts of International Airlines catered by them at the tarmac at Chhatrapati Shivaji International Airport, Mumbai, as required under the regulations of the Customs Act, 1963. In our opinion, the aforesaid cer .....

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ose of Foreign Exchange Regulation Act, 1973 and the Rules made thereunder as also the Foreign Exchange Management Act, it appears that the Assistant General Manager, Foreign Exchange Department has written a letter dated November 7, 2005. By the said letter the said officer has certified that the provisions of the DGFT Circular No.60/97-2002 dated December 24, 1998 regarding treatment of the amounts received in rupees by a hotel company out of repatriable funds would also apply under the FEMA R .....

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e disputed items at the Chhatrapati Shivaji International Airport, Mumbai, and thus, it is a fit case where the orders passed by the authorities below should be set aside and the Assessing Officer should be directed to consider the claim of deductions under Section 80HHC of the Act on merit as the appellant has proved that the transaction in question from the said airport amounts to export out of India. 27. We, therefore, allow this appeal by setting aside the orders of the authorities below and .....

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t in this regard. Accordingly, the Ground Nos. 2 & 3 raised by the assessee are allowed. 4. Disallowance of running and maintenance expenditure of aircrafts - ₹ 42,80,883/- 4.1. The brief fact s of the case are that the assessee incurred running and maintenance expenditure of its aircraft s to the tune of ₹ 2,14,04,416/- during the assessment year under appeal. The Learned Assessing Officer in line with the decision taken by him in the earlier years sought to disallow 20% of the .....

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tual maintenance and running expenditure of aircrafts amounting to ₹ 9.465,892 even though the aircrafts were exclusively used for the purpose of business . 4.2. The Learned AR argued that there cannot be any personal element of expenditure in the hands of the company as the company being a non-natural person. He relied on the decision of the Gujarat High Court in the case of Sayaji Iron and Engineering Co. -vs.- CIT reported in 253 ITR 749 in support of this contention. He further argued .....

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he hotels, and for that purpose, the assessee maintains two aircrafts for business convenience. The expenditure for maintenance of the ai rcraft has no direct nexus with it s earning as even though, no customer is available for chartering the ai rcrafts, the assessee is required to incur expenditure for maintenance and repair which includes undergo process of fitness certificate from International Authority as per Aviation rules. It was al so further argued by the Learned AR that the Learned Ass .....

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e Learned AR further argued that the version of the Learned Assessing Officer as to revenue generated from chartering of aircraft s amounting to ₹ 1,19,39,421/- was basically incorrect and al so objected to the statement of the Learned Assessing Officer that the assessee could not link the revenue generated by the aircraft s with the flights undertaken. He argued that according to Learned AO the total expenditure on maintenance and running of ai rc raft s was ₹ 2,14,04,416/- ,whereas .....

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a surplus of ₹ 1,07,87,457/- ( 20252452-9564995). The Learned AR further argued that full details of expenses and the log book of flights undertaken by the aircraft has been provided from where it could be seen that the expenditure was incurred only for business purposes. He further argued that in Asst Years 1999-2000 and in Asst Year 2001-2002, on the same set of fac ts, this tribunal had restored the issue to the file of the Learned Assessing Officer for veri fication of details to find .....

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d by him on this ground. 4.4. We have heard the rival submissions and perused the materials available on record. It is seen that the net expenditure towards running and maintenance of aircraft s debited in profit and loss account is only ₹ 95,64,995/- and hence the premise of the Learned Assessing Officer that a sum of ₹ 2,14,04,416/- is debited to profit and loss account is grossly incorrect. It is observed that ultimately the assessee had derived surplus of ₹ 1,07,87,457/- be .....

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ned Assessing Officer to reject the same and proceed to make disallowance on estimated basis to be in line with the disallowances made in earlier years. We also find that the earlier years ITAT order on this issue need not be followed for the asst year under appeal as in this year, the enti re detail s were very much before the Learned Assessing Officer. We also find lot of force in the arguments of the Learned AR that the assessee company being a non-natural person cannot have any personal elem .....

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e violations, if any, on the same and hence on that ground also, no disallowance of expenditure could be appreciated. We find that the Learned Assessing Officer had made the enti re addition based on surmises and conjectures and made on ad hoc basis. It is well founded proposition that what is apparent is real and the allegation to prove the cont rary is on the person making such allegation. The following decisions support our view in this regard:- (i) CIT vs Daulat Ram Rawatmull (1973) 87 ITR 3 .....

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he brief facts of this issue is that the assessee company availed 2603.99 Million in Japanese Yen on 13th August 2001 (equivalent to ₹ 100 crores) under Foreign Currency Non Resident - Bank Scheme (in short FCNR(B)) Loan for the purpose of its working capital business. Hence this goes to prove that the loan has been obtained for revenue account. This loan was outstanding as on 31.3.2002 and the same was restated at the exchange rate prevai ling at the end of the year in consonance with the .....

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7; 4,15,36,381/- The assessee reduced the same from it s taxable income as the same was notional gain which was unrealized as on the date of balance sheet date and accordingly filed i ts return of income. 5.2. The Learned Assessing Officer added the same as income earned as the foreign exchange fluctuation was earned on revenue account relying on the decision of the Supreme Court in the case of Sutlej Cotton Mills Ltd vs CIT reported in 116 ITR 1 (SC). Aggrieved, the assessee preferred an appeal .....

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the company was not entitled to claim any refund or adjustment on that account . 5.3. The Learned AR argued that the gain derived on account of foreign exchange fluctuat ion by restating the foreign currency loan at the year end and hence the same cannot be brought to tax by the Learned Assessing Officer as it is only notional and not realized by the assessee. The Learned AR further argued that similar foreign exchange fluctuation on restatement of foreign currency loan in Asst Year 2003-04 (i.e .....

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to this, the Learned DR relied on the orders of the lower authorities. 5.4. We have heard the rival submissions and perused the materials available on record. Admittedly, the assessee on 13.8.2001 had availed foreign currency loan of JPY 2603.99 Million (equivalent to ₹ 100 crores) for the purpose of its working capital business. Hence it can be safely concluded that the loan was borrowed on revenue account. Based on this, it could logically be concluded that any exchange fluctuation arisi .....

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ces of the case and in law, the additional liability arising on account of fluctuation in the rate of exchange in respect of loans taken for rev enue purposes could be allowed as deduction under section 37(1) in the y ear of fluctuation in the rate of exchange or whether the same could only be allowed in the y ear of repayment of such loans? (ii) Whether, the assessee is entitled to adjust the actual cost of imported assets acquired in foreign currency on account of fluctuation in the rate of ex .....

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rt judgement as under:- 13. As stated above, one of the main arguments advanced by the learned Additional Solicitor General on behalf of the Department 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 (supra). Relying on the said judgment, it was sought to be argued that the increase in liability at any point o .....

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t of fluctuation in the rate of foreign exchange was merely a contingent/notional liability 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 .....

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, Parliament has 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. CIT reported in 165 ITR 765 the Madhya Pradesh High Court has held that the expression expenditure as used in Section 37 may, in the circumstanc .....

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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. The quantum of allowances permitted to be deducted under diverse heads unde .....

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d 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 any business which is carried on by the assessee during the previous year. Therefore, one has to take into account s .....

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he 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 increase profits before actual realization. This is the theory underlying the Rule that closing stock is to be valued at cost or market price, whic .....

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l 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 to time the Accounting Standards to be followed by any class of assessees or in respect of any class of income. Accordingly, under Sectio .....

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unts of the assessee. Equally, there is no finding given by the AO stating that the assessee has not complied with the accounting standards. 15. For the reasons given hereinabove, we hold that, in the present case, the loss suffered by the assessee on account of the exchange difference as on the date of the balance sheet is an item of expenditure under Section 37(1) of the 1961 Act . In view of the aforesaid judgement of the apex court, we hold that the sum of ₹ 4,15,36,381/- being the exc .....

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s and the sums out standing as on 31.3.2002 towards that account are as below:- (i) Lake Palace Hotels & Motel s Ltd - ₹ 2,50,00,000/- (ii) Jyoti Pvt Ltd - . ........ ............... ....... .............Rs. 58,28,690/- (iii) Nandi Hills & Resort s Ltd -........ ............... .Rs.9,01,50,000/- (iv) Balamurie Island Resort Pvt Ltd -.............Rs. 69,60,000/- (v) Balaji Hotel s & Enterprises Ltd...............Rs.15,12,00,000/- (vi) Green Fields Hotels & Resort s P Ltd.... .....

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id party had also duly deducted tax at source on the interest payment made to the assessee . (ii) Amounts paid to Jyoti Pvt Ltd - ₹ 58,28,690/- The amount represents the balance recoverable from the company which was pending for certain disputes. The assessee has duly charged interest @ 18% on the loan amount both for FY 2001-02 & 2002-03 and the amount was received in full in the FY 2002-03. (iii) Amounts paid to Nandi Hills & Resorts Ltd - ₹ 9,01,50,000/- This represent s a .....

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u. The Hotel was under const ruction but due to financial problem the owner could not complete the same and was in litigation with the Financial Institutions who had initially lent fund for the project. The loan given is interest bearing and the company has Agreement to operate the Hotel to be constructed ti ll such time the loan with interest is not repaid. (vi) Amounts paid to Green Fields Hotels & Resorts P Ltd.- ₹ 10,00,00,000/- The amount was advanced for acquisition of land for G .....

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beroi Kerala Hotels & Resort Ltd -Rs.40,00,000/- The same is al so a Joint Venture Company and according to the agreement the company is required to advance on equity shares part icipation. The company has al so been allotted 400000 shares of ₹ 10 in Asst Year 2003-04. (ix) Amounts paid to Mumtaz Hotel Ltd - ₹ 9,50,00,000/- This was paid as loan and interest is charged on the same by the assessee. During the course of assessment proceedings , the assessee mentioned the purpose of .....

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xtent of the aforesaid monies advanced to various parties by concluding that the same were advanced for nonbusiness purposes. Aggrieved, the assessee challenged this issue before the Learned CITA who upheld the disallowance of interest made by the Learned AO except in respect of amounts advanced to Lake Palace Hotels & Motel s Ltd; Jyoti Pvt Ltd and Mumtaz Hotel Ltd from whom the assessee had charged interest. Aggrieved, the assessee has preferred further appeal before us on the following gr .....

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sufficient own funds at its disposal and hence the borrowed funds were not utilized for advancing monies to aforesaid part ies and hence there should not be any disallowance of interest on borrowed funds. He further argued that all the advances were made in the nature of advances pursuant to ei ther joint venture agreement s or advance for shares and is not paid as loans and hence there is no question of charging any interest on the advances. The Learned AR further argued that all the advances w .....

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amp; 641 / Kol / 2012 for Asst Years 2006-07 & 2007-08 dated 9.6.2015 rendered by Kolkata Tribunal A Bench. In response to this, the Learned DR apart from placing reliance on the written submissions filed, vehemently supported the orders of the lower authorities. 6.4. We have heard the rival submissions and perused the materials and case laws available on record. It is seen that the assessee had on one hand admittedly advanced interest free funds to certain group companies and interest beari .....

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availability of own funds with the assessee to the tune of ₹ 646.65 crores (being the net owned funds at the beginning of the year to the tune of ₹ 574.46 crores plus cash profit for the year amounting to ₹ 72.19 crores), nor brought out the nexus between the borrowed funds and the interest free advances made by the assessee. The Learned Assessing Officer simply states that the assessee on one hand is paying interest on its borrowed funds and on the other hand advances interest .....

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s Walchand and Co. (1967) 65 ITR 381 (SC), wherein it was held that in applying the test of commercial expediency whether the expendi ture was excessively laid down for the purpose of business, reasonableness of the expenditure is to be judged from the point of view of a businessman and not that of the revenue. It is well decided that what is to be seen for the purpose of allowability of interest u/s 36(1)(ii i) of the Act is as to whether the borrowed funds were utilized for the purpose of busi .....

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et into the few decisions on this subject:- CIT vs Gopalakrishna Muralidhar reported in (1963) 47 ITR 469 (AP) The learned counsel maintains that since the capital borrowed was utilised by the family for personal use, no relief could be claimed under that clause. We do not think that we can give effect to this argument. Indisputably, these amounts were borrowed only for the purpose of the business of the family. The assessee drew out from time to time various sums of money aggregating to ₹ .....

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e fact, that part of the amount borrowed was later on used for personal expenses, would deprive the assessee of the benefits of clause (iii) of sub-section (2) of section 10 . Woolcombers of India Ltd vs CIT reported in 134 ITR 219 (CAL)- The assessee had an overdraft account with a bank. On December 12, 1969, i.e. a few days before the end o] the assessee s accounting year on December 31, 1969, the account showed a debit balance of Rs.I,39,412. The assessee paid advance of ₹ 18,05,000 on .....

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o the overdraft facility specifically for the purpose of payment of advance tax, and affirmed the order of the ITO. On further appeal, the Tribunal affirmed the order of the AAC. On a reference, the assessee contended that where the prof its of the assessee s business was sufficient to cover the payment of advance tax during the relevant accounting year, if such amount was paid from an account which included the amounts of profits as well as the overdraft taken for the purpose of the business, t .....

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ion, viz. , where there was a mixed account and the profits were sufficient to meet the tax liability from the said account then the presumption should not be drawn that the tax liability was met out of the overdraft account and not out of the profits, was not raised before the Tribunal and, therefore, that contention should not be allowed to be agitated for the first time before the High Court: Held, (i) that though a contention which was not urged before the Tribunal could not be agitated for .....

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ntire profits were deposited in the overdraft account, it should be presumed that in its essence and true character the taxes were paid out of the profits of the relevant year and not out of the overdraft account for the running of the business. Therefore, the interest amounting to ₹ 6,769/- paid by the assessee on the bank overdraft account which was disallowed as being relatable to payment of advance lax should also have been allowed as an admissible deduction in the computation of the a .....

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ended March 31, 1972. Even after debiting the drawings and the loss in the business, the facts show that there are sufficient funds with the firm to cover the entire advance to the hotel. The Revenue has not made any attempt before the Tribunal to show that the firm has paid interest on the amount outstanding in the accounts of the partner. Though the third question raised proceeds on the basis that the firm had paid interest to the partner on the credit balance, there was no finding either by t .....

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aterial or evidence to indicate that the firm had advanced moneys to the hotel out of funds borrowed for business purpose the presumption would arise, where there is a common fund that the money advanced came only out of its own funds. The decision of the Andhra Pradesh High Court in the case of Gopikrishna Muralidar [1963] 47 ITR 469, would support the ease of the Revenue (?) to that extent. In that case, the assessee-a Hindu undivided family-had a large capital of ₹ 20 lakhs and also mad .....

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ent for household expenses and this was a case where the loans were taken for carrying on the business of the assessee-firm, but the family used to withdraw some amounts from the business and which were within the limit of capital supplied by the family. In that situation the court held that presumption can arise that where the assessee had both his own money as well as borrowed capital, the money lent came out of his own funds. The above decision of the Andhra Pradesh High Court was followed by .....

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s his own capital as also the borrowed funds, the former rather than latter to have been utilised for the non-business or personal expenses. In the facts of the case the Tribunal has found that the money borrowed has been inextricably mixed up with the own funds of the assesses and it was impossible to delineate whichever funds were advanced to Savera Hotels (P.) Ltd,, free of interest, and in that factual situation, we are of the opinion that the finding of the Appellate Tribunal that no disall .....

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interest. The questions raised need reframing as they proceed on some wrong assumption and accordingly we reframe the first question as under : Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in deleting the sum of ₹ 30,063 sustained by the Appellate Assistant Commissioner? In so far as the second question is concerned, that also is reframed as under : Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right i .....

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stances, there will be no order as to costs . CIT vs Britannia Industries Ltd reported in 280 ITR 525 (CAL) The assessee had a packing credit sanctioned by Syndicate Bank, to the extent of ₹ 25lakhs. This was enhanced to ₹ 175 lakhs. One the very dateof enhancement of the packing credit, a sum of ₹ 165 lakhs was advanced to M through a cheque drawn on Syndicate Bank. The Assessing Officer found that the firm to which interest free loan was advanced was constituted by the relati .....

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d the advance was also granted from the mixed account. Therefore, there were sufficient funds for making advance of ₹ 1.65 crores out of total transaction ofRs.114.08 crores. The Tribunal also found that out of the total export of the cashew-nut kernels of ₹ 129 la. khs in the assessment year 1985-86, an e xtent of ₹ 91lakhs was supplied by M and that there was regular course of business between the assessee and M and the advances were made to M in the regular course of busines .....

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onsideration; there was regular course of business betwe en the assessee and the firm; and the advances were made to M in the regular course of business; such advances were made in the course of busine ss for commercial expedience and for the purpose of business; the findings arrived at by the Tribunal were not perverse; the entire expenditure was made from the mixed account. Therefore, there would be a presumption that the advance was made out of the assessee s own funds and not from the borrow .....

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quire whether the loan was given by the assessee as a measure of commercial expediency. The expression commercial expediency is one of wide import and includes such expenditure as a prudent businessman incur s for the purpose of business. The expenditure may not hav e been incurred under any legal obligation, but yet it is allowable as business expenditure if it was incurred on grounds of commercial expediency. Decisions relating to section 37 will also be applicable to section 36(1) (iii) becau .....

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sion for the purpose of busines s is wider in scope than the expression for the purpose of earning profits . CIT v. MALAYALAM PLANTATIONS LTD. [1964] 53 ITR 140 (SC) and CIT v. BIRLA COTTON SPINNING AND WEAVING MILLS LTD. [1971] 82 ITR 166 (SC) followed. To consider whether one should allow deduction under section 36(1)(iii) of interest paid by the assessee on amounts borrowed by it for advancing to a sister concern, the authorities and the courts should examine the purpose for which the assesse .....

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(which need not necessarily be the business of the assessee itself) the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize his profits . Addl. CIT vs Tulip Star Hotel s Ltd in CC No. 7138-7140 / 2012 dated 30.4.2012 by the Supreme Court , wherein it was held as belo .....

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CIT and Another reported in 298 ITR 298 (SC) 16. As stated above, in this batch of civil appeals we are concerned with the Assessment Years 1993-94, 1994-95, 1995-96, 1996-97 and 1997-98. At this stage, it may be mentioned that as far back as in August/September 1991 assessee herein had given interest free advances to its sister concerns. These advances stood reduced over a period, till AY 1997-98. Each year the balances stood reduced. Further, vide Order dt.3.1.03 the Tribunal held, for AY 1992 .....

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es during the AYs 1992-93 and 1993-94. It is equally true that for the AY 1994-95 the Tribunal took a contrary view in view of change in law brought about by Finance Act 1992. Prior to 1.4.93 payment of interest to the partner had to be added back to the assessable income of the firm whereas after Finance Act 1992 such payment became an item of deduction for computing the assessable income of the firm and it became part of the business income of the partner. In view of this change of law, the Tr .....

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the loans granted in August/September 1991 continued upto AY 1997-98 and that the said loans were advanced for business purposes and that interest paid thereon did not exceed 18/12% per annum, the assessee was entitled to deductions under Section 36(1)(iii) read with Section 40(b)(iv) of the 1961 Act. 17. One aspect needs to be mentioned during the AY 1995- 96, apart from the loan given in August/September 1991, the assessee advanced interest free loan to its sister concern amounting to ₹ .....

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cover the impugned loan of ₹ 5 lacs . CIT -vs.- Reliance Utili ties & Power Limited [2009] 313 ITR 340 (Bom.)- The assessee claimed deduction of interest on borrowed capital. The Assessing Officer recorded a finding that the sum of ₹ 213 crores was invested out of its own funds and ₹ 147 crores was invested out of the borrowed funds. Accordingly he disallowed interest amounting to ₹ 4.40 croes calculated at 12 per cent. per annum for three months from January, 2000 t .....

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hen a presumption would arise that investments would be out of the interest-free funds generated or available with the company, if the interest-free funds were sufficient to meet the investments. In this case this presumption was established considering the finding of fact both by the Commissioner (Appeals) and the Tribunal. The interest was deductible . In view of the aforesaid facts and ci rcumstances and the judicial precedents on the impugned issue, we hold that the advances were made by the .....

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could be drawn in favour of the assessee that those advances were made only out of own funds of the assessee. We further hold that from the aforesaid fact s available on record, the assessee had advanced monies to various concerns during the course of its business to further strengthen its business interests with the said parties and as a measure of commercial expediency. Accordingly we hold that the action of the Learned Assessing Officer in disallowing a sum of ₹ 6,27,16,642/-is not war .....

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arned Assessing Officer during remand proceedings. However, the Learned Assessing Officer gave a comment in the remand report that original bills were not produced by the assessee for authentication. The assessee pleaded that the original bills were never called for by the Learned AO during remand proceedings and hence the same could not be submitted before him. The Learned CIT(Appeal s) upheld the disallowance made by the Learned AO in this regard. Aggrieved, the assessee has preferred an appea .....

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th the copies of the bills thereon. He further argued that the Learned CIT(Appeals) having called for a remand report from the Learned Assessing Officer in this regard ought not to have rejected the admission of additional evidences. In fact only on admission of additional evidences filed before him, he sought to give an opportunity to the Learned Assessing Officer in remand proceedings seeking for his comment s. Hence on this ground itself, the assessee is entitled for relief. Even otherwise, t .....

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e assessee, the legal expenses incurred by the assessee were in respect of payments made to various renowned counsels for pursuing the various legal disputes of the assessee arising out of its business. We do not appreciate the view of the Learned CITA that additional evidences filed by the assessee in the form of detail s and bills for legal expenses were not admitted by him after calling for a remand report from the Learned Assessing Officer. In fact the remand report it self was called for fr .....

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we have no hesitation in deleting the addition made towards disallowance of legal expenses of ₹ 38,49,317/-and accordingly the Ground No. 7 raised by the assessee is allowed. 8. Disallowance of proportionate management expenses u/s 14A of the Act -Rs.10,00,000/- 8.1. The brief fact s of this issue is that the assessee had earned dividend income of ₹ 2,45,84,822/- out of the investment of ₹ 280,01,93,396/-. The Learned Assessing Officer disallowed a sum of ₹ 50,00,000/- t .....

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ed AR argued that most of the investment in shares were made in earlier years and are practically old investment s and most of them were made in group companies which does not require any incurrence of any management expenses. He al so argued that onus is on the revenue to prove that the interest paid on borrowed funds related to acquisition of shares yielding tax free income and placed reliance on the following decision in support of his contentions:- Maruti Udyog Ltd vs DCIT reported in (2003) .....

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cy Ltd. [1951] 19 ITR 191 On the other hand. If the revenue wants to disallow an expenditure under a particular provision, then the onus would be on the department to prove that conditions for disallowance are satisfied. Reference can be made to Judgment of Punjab & Haryana High Court 111 the case of Saraswati Industrial Syndi cate Ltd. vs. CIT[1982] 136 ITR 361. In the present case, it is the revenue who wants to disallow the expenditure under section 14A. Hence the onus is on the revenue t .....

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the assessee is only ₹ 280.01 crores and hence it could be easily inferred that the investments were made only out of own funds. In response to this, the Learned DR supported the orders of the lower authorities. 8.3. We have heard the rival submissions and perused the materials available on record. The relevant assessment year under appeal is 2002-03 at which point of time, the provisions of Rule 8D was not in force and the same was made applicable only from Asst Year 2008-09 as decided i .....

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. The Hon ble Jurisdictional High Court in the case of CIT vs M/s R.R. Sen & Brothers P Ltd in GA No. 3019 of 2012 in ITAT NO. 243 of 2012 dated 4.1.2013 had held as under:- The assessee did not show any expenditure incurred by him for the purpose of earning the money whi ch is exempted under income tax. The Tribunal has computed expenditure at 1% of such dividend income, which, according to them, is the thumb rule applied consistently. We find no reason to interfere. The appeal is dismissed .....

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purpose of deduction u/s 80HHD - ₹ 73,61,14,470/- 9.1. The brief facts of this issue is that from the tax audit report filed by the assessee, it was seen that the assessee is following the practice of excluding indirect taxes from the total turnover of ₹ 374,71,95,919/-. The Learned AO in the computation u/s 80HHD of the Act added indirect taxes to the total turnover on the contention that the practice of excluding the indirect taxes is in violation of section 145A of the Act and th .....

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) and work contract tax (Rs.12,08,997/-) was added to the total turnover for the purpose of ascertaining the percentage of receipt in foreign currency for granting deduction u/s 80HHD of the Act. The Learned CIT(Appeals) deleted the addition made on this count. Aggrieved, the revenue is in appeal before us on the following ground:- 1. On the facts and in the ci rcumstances of the case Ld. CIT[A] has erred in deleting the Assessing Officer s additions of ₹ 73,61,14,470/- on account of colle .....

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n response to this , the Learned AR argued that it is now well settled law that computation of deduction under Chapter VIA is an independent code by itself for computing relief available under the relevant provisions and indi rect taxes are not included in the total turnover for computation of deduction u/s 80HHC and 80HHD of the Act as no element of profit is involved in it and placed reliance on the decision of the Supreme Court in the case of CIT vs Lakshmi Machine Works Ltd (2007) 290 ITR 66 .....

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intended to have a formula to ascertain export profits by apportioning the total business profits on the basis of turnov ers. Apportionment of profits on the basis of turnover was accepted as a method of arriving at export profits. This method earlier existed under the Excess Profits Tax Act and it existed in the Business Profits Tax Act. Therefore, just as commission received by an assessee is relatable to exports and yet it cannot form part of turnover, excise duty and sales tax also cannot f .....

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the tribunal below committed substantial error of law in re-computing deduction u/s 80HHD of the Act at ₹ 77,62,17,303/- by not including receivables in its computation although the receipt includes receivables as per mercantile system of accounting. A plain reading of the section 80HHD makes it cl ear that for computation of the relief u/s.80HHD, the total turnover alone is inconsequential but the AO has relied upon it. In our opinion, for computation of gross total receipt in business, .....

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rther appears that copy of Accountant s certificate in Form 10CCAD has also been produced. Therefore, the Assessing Officer wrongly considered the total turnover of ₹ 395,62,34,559/-instead of gross receipt in business amounting to ₹ 390,93,27,318/- certified by the Auditor and accordingly, the relief allowed u/s 80HHD should be enhanced to ₹ 77,62,17,303/- instead of ₹ 77,53,58,471/- allowed by the Assessing Officer. In view of the aforesaid decisions, we are not incline .....

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ortioned as per ratio of saleable hotel room available in the respective unit s, average room rate of such unit, nature and mixture of inward traffic -whether domestic or foreign tourist, corporate client or free inward tourist etc. Based on the aforesaid ratio, the common expenses are allocated to different unit s and recovered out of thei r Gross Operating Profi t. Accordingly such cont ributions towards common expenses are considered as expenditure chargeable to the Gross Operating Profit of .....

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t at ₹ 4,78,58,842/- and since the assessee had allocated ₹ 2,07,72,000/- , a sum of ₹ 2,70,86,842/- was treated as common expenses att ributable to Bangalore unit and accordingly the eligible profit of Bangalore unit has been reduced by the same amount for the purpose of calculation of deduction u/s 80IA of the Ac t. The Learned CIT(Appeals) deleted this addition by relying the decision of his predecessor on the same issue passed for the Asst Year 2001-02. Aggrieved, the reven .....

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issue instead of Assessing Officer s allocation of ₹ 2,70,86,842/- with reference to specific findings recorded in his assessment order . 10.3. The Learned DR argued that for the Asst Years 2000-2001 & 2001-02 in ITA No. 833/Kol/2005 and ITA No. 1090/Kol/2005 respectively vide order dated 8.9.2006, this Tribunal had set aside this issue to the file of the Learned AO and prayed for similar di rection for this asst year also. In response to this, the Learned AR pleaded that no order has .....

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file of the Learned Assessing Officer in ITA No. 833/Kol/2005 and ITA No. 1090/Kol/2005 respectively vide order dated 8.9.2006 with the following di rections :- Considering the totality of the facts of the case and following the decision of the Tribunal in assessee s own case for A.Y. 2000-01, we restore the matter back to the file of the AO to decide the issue afresh on the basis of the details filed by the assessee. The A.O. should give adequate opportunity of being heard to the assessee as p .....

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s. 11. Disallowance of Pre-opening expenses as capital in nature relating to Vanyavilas - ₹ 1,61,98,830/- and relating to Udayvilas - ₹ 1,42,67,177/- 11.1. The brief fac ts of this issue are that the assessee had incurred a sum of ₹ 1,61,98,830/- pertaining to Vanyavilas hotel and ₹ 1,42,67,177/- pertaining to Udayvilas hotel and it relates to the period prior to the date of commencement of commercial production of the said hotels but after the set ting up of the said hot .....

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relied on certain decisions in its support. But the Learned Assessing Officer sought to disallow the sum of ₹ 3,04,66,007/- in the assessment by treat ing the same as capital expendi ture. In first appeal, the Learned CIT(Appeal s) appreciated the contentions of the assessee and deleted the addition. Aggrieved, the revenue is in appeal before us on this issue on the following ground:- 3. On the facts and in the ci rcumstances of the case Ld. CIT[ A] has erred in deleting the disallowance o .....

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d are only capital in nature. In response to this, the Learned AR argued that the assessee had set up two seven star hotel s and all the expenses for const ruction of the said hotels were duly capitalized by the assessee. The subject mentioned pre-opening expenses are nothing but expenses incurred on salaries, recruitment, training and development etc of General Managers, Service Engineers etc who are di rectly related to the operation of the Hotel after opening so that no obstruction arises whi .....

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or income tax purposes and treated as deferred revenue expenditure in the books of accounts as the Income Tax Act does not recognize deferred revenue expendi ture other than those contemplated in the speci fic provisions such as section 35D of the Act. He relied on the decision of the Jurisdictional High court in the case of CIT vs Kanoria General Dealers P Ltd reported in 159 ITR 524 (CAL) and the decision of the Delhi High Court in the case of CIT vs Relaxo Footwears Ltd reported in (2007) 293 .....

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s and Udayvilas) during the assessment year under appeal and certain expenses in the form of salaries, training and development of general managers, service engineers etc, were incurred by the assessee after the setting up of its business but before the date of commencement of business to enable smooth functioning of the activities post commencement of business to provide uninterrupted and better services to the guest s in the hotel wi thout any obstruction. These expenses though treated as defe .....

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r not. We find that this issue has been elaborately dealt with in the following cases:- CIT -vs.- Kanoria General Dealers (P) Ltd. [1986] 159 ITR 524 (Cal.) Where a business unit has been set up by the assessee which is ready to commence production, the assessee will be entitled to claim deduction of expenditure and the expenditure cannot be disallowed on the ground that the same had been incurred prior to the commencement of the actual business of commercial production. (2nd para at page 525) : .....

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g up could not be disallowed on the ground that the assessee had not commenced commercial production in such business . CIT -vs.- Hughes Escorts Communications Limited [2009] 311 ITR 253 (Delhi) A plain reading of section 2(34) of the Income-tax Act, 1961, shows that for a new business the previous year is the period beginning with the date of setting up of the business. There is a distinction between setting up and commencement of a business. When a business is established and is ready to compl .....

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e involved different activities in which the first step was the purchase of the VSAT equipment. There was no question of the assessee having to place a purchase order with H, for a purpose other than that of its business. The purchase order was placed on July 28, 1994. The application to the Department of Telecommunications for licence and the receipt of the satellite signals were the consequential stages. The signals were to be received after the VSAT equipment was installed in the premises of .....

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this order dismissed. The assessee-company, engaged in trading in all kinds of rubber footwear, in the assessment year 1995-96, commenced the business of manufacture and sale of hawai cahhaps. The assessee claimed deduction of pre-operative expenses in the computation of total income, expenses occurred on the new factory and capital issue expenses. The Assessing Officer disallowed these claims. The appeal filed by the assessee was par tly allowed by the Commissioner of Income Tax (Appeals). Thi .....

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llation of plant and machinery was capital in nature and thus disallowable, and (iii) the pre-operative expenses could not be written off at one go but had to be capitalised and admissible depreciation allowed thereon: Held, dismissing the appeal, that the new unit was a part of the existing business and there was no dispute that there was unity of control and interlacing of the units. Thus the expenses incurred by the assessee for the setting up of the new unit which was a part of the existing .....

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l operation started subsequently. When a business is established and is ready to be commenced, then it can be said that business is set up, but before it is ready to be commenced, there may be interval between a business which is set up and a business which is commenced. All the revenue expenditures incurred after setting up of the business but before its commencement are permissibl e deductions while computing the income under the head Income f rom business and profession. Thus, a business can .....

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been used for more than 180 days. Therefore, there was no reason to disallow claim of depreciation. [Para 5 J Therefore, the matter was restored back to the file of the Assessing Officer wi th a direction to allow proportionate expenditure incurred after 16-9-2000, as revenue expenditure . [Para 6 J Kerosam Industries & Cotton Mills -vs.- CIT (1992) 196 ITR 845(Cal.) If expenses are incurred in connection with the setting up of a new business, such expenses will be on capital account. But, w .....

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y only a new unit of the assessee by way of two fresh hotels (Vanyavilas and Udayvilas) which is nothing but an expansion of the existing hotel business of the assessee with complete interconnection and interlacing of funds with common administ ration, common management, common fund and common place of business. Respectfully following the aforesaid judicial precedent s on the impugned issue, we hold that the entire expenditure of ₹ 1,61,98,830/-relating to Hotel Vanyavilas and ₹ 1,42 .....

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replacement of bad and doubtful debts which are not allowable under the Act. This addition was deleted by the Learned CIT(Appeals) by relying on the order of his predecessor on the same issue for the earlier year. Aggrieved, the revenue is in appeal before us on the following ground:- 4. On the facts and in the circumstances of the case Ld. CIT[A] has erred in deleting the addition of ₹ 28,91,127/-on account of provision for repairs and replacement of bad and doubtful debts in relying on t .....

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deduction under the Act and accordingly pleaded for setting aside of Learned CITA s order on this issue. In response to this, the Learned AR argued that technical assistance fees were determined by the terms of the contract s with the hotel owning companies. He further argued that this issue was covered by the decision of this t ribunal in ITA No. 833/Kol/2005 dated 8.9.2006 for the Asst Year 2001-02 in assessee s own case. 12.3. We have heard the rival submissions and perused the materials avai .....

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al filed by the rev enue against the order of the CIT(A). We find that the Tribunal at para 15 of the order has held as under:- 15. We have heard both the parties and perused the orders of tax authorities. We have also considered the paper book filed by the ld. counsel for the assessee. From the perusal of the agreement between the assessee and Hotel Raj Bilash, it is apparent that the disallowance was made by the AO out of misconception about contractual obligation in earning management fees an .....

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ribunal vide ITA No. 607/K/2005 dated 30.06.2000 in assessee s own case for AY 2000-01 had dismissed the ground raised by the revenue on this issue. 26. Considering the totality of the facts of the case and following the decision of the Tribunal in assessee s own case in the immediately preceding two assessment years, we do not find any infirmity in the order of the ld. CIT(A) and accordingly uphold the same. Grounds of appeal No. 2 by the revenue is therefore dismissed . In view of the fact tha .....

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s for earlier years written back ignoring the clarification given at the time of assessment proceedings that the said amount was provided in accounts of that year on the provisional basis pending audited accounts and as such excess amount was offered for taxation in that year. After audit was over and the amount recovered was determined, the excess provision was written back during the year under assessment and since the amount was deleted and offered for taxation in earlier years it was claimed .....

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for in the next year. Aggrieved, the revenue is in appeal before us on the following ground:- 5. On the facts and in the circumstances of the case Ld. CIT[A] has erred in deleting the addition of ₹ 4,62,806/-on account of excess provision of technical fees on accepting fresh explanation of assessee which the assessee has failed to explain before the Assessing Officer for verification during assessment proceedings for the year . 13.3. The Learned DR vehemently supported the orders of the Le .....

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venue. He accordingly pleaded that the addition made on this account be deleted. 13.4. We have heard the rival submissions and perused the materials available on record and we find lot of force in the arguments of the Learned AR that the income on account of technical services in respec t of managed hotels are initially booked on provisional basis by the assessee for want of finalization of accounts of those managed hotels, and later based on Chartered Accountant s certificate the correct income .....

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claim that might arise in the form of compensation due to the death of a guest in the swimming pool of the hotel in the year 1997-98 and this issue was under litigation before the Hon ble Delhi High Court. During the Asst Year 2002-03, the assessee received the final order from the Delhi High Court wherein, it was held that the advances already paid shall be t reated as compensation paid by the assessee. Accordingly, this advance was written off in the books of the assessee during Asst Year 200 .....

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nt of the claim case on thei r agreeing not to lay any further claim in future arising out of the death of the plaintiff. Accordingly, the Learned CIT(Appeal s) deleted this addition. Aggrieved, the revenue is in appeal before us on the following ground:- 6. On the facts and in the circumstances of the case Ld. CIT[A] has erred in deleting the addition of ₹ 86,21,700/-on account of advance written off on accepting fresh evidence and fresh explanation made by assessee in violation of Rule 4 .....

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used the materials available on record. It is seen that the assessee has debited the sum of ₹ 86,21,700/- in its profit and loss account under the head Advances written off pursuant to the di rections of the Delhi High Court order received during the Asst Year 2002-03 (i.e. the year under appeal). This court order is very much in the public domain and cannot be construed as an additional evidence filed by the assessee before the Learned CIT(Appeals). Even otherwise, we find that the revenu .....

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iverted for non-business purposes 15.1. The brief facts of this issue are that the assessee had advanced monies to two parties namely Lake Palace Hotels & Motels Ltd (Rs.2,50,00,000/-) ; Mumtaz Hotel Ltd (Rs.9,50,00,000/-) wherein assessee had duly charged interest and offered the same to tax. Accordingly, it was pleaded by Learned AR that no disallowance of interest should be made. The Learned CIT(Appeals) deleted the addition made towards disallowance of interest on borrowed funds in respe .....

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id on loan free advances made to sister concern on accepting fresh explanation made by assessee without appreciating the fact and circumstances of the loan transactions recorded by Assessing Officer in his assessment order . 15.2. We have heard the rival submissions. This issue has been elaborately dealt with in Ground No. 6 raised by the assessee in this order. The decision rendered thereon will be equally applicable to Ground No. 7 raised by the revenue. Accordingly, ground no. 7 raised by the .....

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(Appeals) on the basis of earlier year s order of his predecessor deleted the addition made towards staff welfare expenses on an ad hoc basis wi th a finding that it is quite usual and standard practice in hotel business to provide meals to its employees and there was no dispute on the fact s that expenditure on such meal was allowable business expenditure. He also gave further finding that the Learned AO did not dispute the fact that the expenditure had been incurred and that being so, he had n .....

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circumstances recorded by Assessing Officer in his asstt. order . 16.2. The Learned DR relied on the order of the Learned Assessing Officer on this issue. In response to this, the Learned AR argued that the assessee had only provided meal s to its employees on duty pursuant to a memorandum of settlement dated 27.9.99 entered into with the employees of Oberoi Tower and Oberoi Mumbai u/s 18(1) r.w.s. 2(p) of Industrial Disputes Act, 1947 Rule 62 of Industrial Disputes (Bombay) Rules, 1957 and als .....

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time of final disposal of appeal by the Hon ble High Court. 16.3. We have heard the rival submissions. It is seen that the addition has been made only on an ad hoc basis by the Learned Assessing Officer. It is seen that the learned counsel for the revenue had sought to withdraw this ground before the Hon ble High Court while pursuing the appeal in the earlier year based on the inst ructions from the Income Tax Department which is clearly stated in para 2 of the order of the High Court. This only .....

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mpany has entered into a memorandum of settlement dated 27t h September, 1999 with the employees of Oberoi Tower, and Oberoi Mumbai under section 18(1) read with section 2(P) of the Industrial Dispute Act, 1947 and Rule 62 of the Industrial Disputes (Bombay) Rules, 1957. We find that Clause No. 13 of the said settl ement reads as under:- 13. Outdoor Allowance/Lunch Allowance - The Lunch allowance of the staff who are required to go on outdoor duty during lunch hours will be increased from ₹ .....

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No. 607/K/2005 dated 30.06.2006 for the AY 2000-01 dismissed the ground raised by the revenue holding as under:- 55. Considering the totality of the facts of the case and considering the Memorandum of Settlement entered into between the management and the employees union for provision of meal to employees on duty and in absence of any contrary material brought on record by the rev enue against the findings of the ld. CIT(A) and further considering that the addition made by the AO is based purely .....

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ordinate bench of the Tribunal on this impugned issue in assessee s own case for the earlier year, we are not inclined to interfere with the decision of the Learned CIT(Appeals) on this issue. Accordingly, ground no. 8 raised by the revenue is dismissed. 17. Disallowance of repairs, renewals, replacement and advertisement - Rs.1,07,42,335/- 17.1. The brief facts of this issue are that the assessee was asked by the Learned Assessing Officer to furnish the details as requisitioned in the questionn .....

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unit but the detail s of expenses are not available and hence genuini ty of the same could not be veri fied. Accordingly he disallowed a sum of ₹ 1,07,42,335/- being 2% of total expenditure on that ac count on an estimated basis. On first appeal, the Learned CIT(Appeals) deleted this addition on the ground that the reasons given by the Learned Assessing Officer for making the disal lowance is vague and cannot be sustained. Aggrieved, the revenue is in appeal before us on the following gro .....

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to this, the Learned AR argued that no disallowance could be made on an ad hoc basis and placed reliance on the decisions of Mumbai ITAT in the case of ACIT vs Arthur Andersen & Co (2005) 94 TTJ 736 (Mumbai) and assessee s own case in DCIT vs EIH Ltd in ITA No. 1760/Cal/1999 for Asst Year 1996-97 in support of his contentions. 17.3. We have heard the rival submissions and perused the materials available on record. We find that the addition of ₹ 1,07,42,335/- has been made only on an a .....

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of interest u/s 14A on the ground that loan has been utilized for investment in shares for earning dividend which is exempt - ₹ 3,47,34,798/- 18.1. The brief fact s of this issue is that from the Balance sheet of the assessee, it could be seen that the assessee has a total investment in shares amounting to ₹ 280.02 crores on which dividend was derived to the extent of ₹ 2.46 crores which was exempt. The Learned Assessing Officer held that from the balance sheet it appears that .....

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IT(Appeals) deleted the addition made u/s 14A on this account on the ground that no evidence has been brought on record by the Learned AO to prove that the borrowed funds were utilized for investment in shares for earning tax free dividend income. Aggrieved, the revenue is in appeal before us on the following ground:- 10. On the facts and in the circumstances of the case Ld. CIT[A] has erred in deleting the disallowance u/s.14A of the I.T. Act the proportionate interest on loan fund utilized in .....

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the revenue to prove that the interest paid on borrowed funds related to acquisition of shares yielding tax free income. The Learned AR further argued that the assesee had sufficient funds in the form of share capital, reserves and surplus and cash profit for the year which worked out to ₹ 646.65 crores (being the net owned funds at the beginning of the year to the tune of ₹ 574.46 crores plus cash profit for the year amounting to ₹ 72.19 crores) and the total investments made .....

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submissions and perused the materials available on record. The relevant assessment year under appeal is 2002-03 at which point of time , the provisions of Rule 8D was not in force and the same was made applicable only from Asst Year 2008-09 as decided in the decision of Godrej & Boyce Manufacturing. However, it is not in dispute that the assessee had derived taxable income as well as tax free income and incurred expenditure for deriving both the incomes and hence disallowance is definitely w .....

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sions:- EIH Associated Hotels Ltd vs DCIT - Chennai Tribunal decision:- Investments made by the assessee in subsidiary company were not on account of investment for earning capital gains or dividend income. Such inv estments had been made by the assessee to promote subsidiary company into the hotel industry and were on account of business expediency and dividend therefrom is purely incidental. Therefore, the inv estment made by the assessee in its subsidiary is not to be reckoned for disallowanc .....

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pose of arriving at disallowance under Rule 8D(iii) . However, when it is found that the assessee has got sufficient own funds in the form of share capital, reserves and surplus to the tune of ₹ 646.65 crores and cash profit for the year amounting to ₹ 72.19 crores and the total investments (including foreign company investment s) is only ₹ 280.01 crores, and more so when these investment s were made years ago by the assessee, it could easily be concluded that no disallowance u .....

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deduction in respect of any expenditure, than onus would be on the assessee to prove that conditions for its allowability are satisfied. Reference can be made to Supreme Court judgment 111 the case of ClT v Calcutta Agency Ltd. [1951 19 ITR 191 On the other hand. If the revenue wants to disallow an e xpenditure under a particular provision, then the onus would be on the department to prove that conditions for disallowance are satisfied. Reference can be made to Judgment of Punjab & Haryana H .....

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ge 94 of the written submissions that at the beginning of the year there were interest-free funds of ₹ 2143.35 crores while at the end of the year at ₹ 2622.37 crores. Thus, there was increase in the interest, the extent of ₹ 479 crores. Besides this, profits of the year amounting to ₹ 975 crores were also pumped in such accounts. Thus, interest-free funds of ₹ 1454 crores were available to assessee for making investment which far e xceeded investment in shares of & .....

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ade under section 14A. Hence, it was for the revenue to discharge the onus which the revenue has miserably failed to discharge. Accordingly, the order of CIT(A) is set aside on this issue and consequently, the addition of ₹ 4,59,08,287 sustained by her is hereby deleted . Respectfully following the decision of the coordinate bench of Chennai and Delhi Tribunal as cited above, we hold that the assessee is having sufficient interest free funds to make investment in shares of domestic compani .....

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from investment in shares of foreign companies made by the assessee would become taxable and hence disallowance u/s 14A would not operate in this regard. We place reliance on the following decisions in this regard :- (i) CIT- vs- Suzlon Energy Ltd (2013) 354 ITR 630 (Guj); (ii) Birla Group Holdings Ltd -vs- DCIT (2007) 13 SOT 642 (Mum. Trib); (iii) ITO -vs- Strides Acrolab Ltd (2012) 138 ITD 323 (Mum. Trib). Accordingly, ground no. 10 raised by the revenue is dismissed. 19. Disallowance of prop .....

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round:- 11. On the facts and in the circumstances of the case Ld. CIT[A] has erred in restri cting the disallowance u/s.14A of the I.T. Act to the extent of Rs.I0,00,000/- on account or proportionate management expenses as against Assessing Officer s disallowance of ₹ 50,00,000/- without appreciating the finding recorded by Assessing Officer in his assessment order . 19.2. We have heard the rival submissions and we find that this issue is elaborately dealt with in this order in Ground No. .....

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wed the depreciation on additions to fixed assets to the tune of ₹ 11,33,20,825/- on the ground that the bills for the same were not produced by the assessee during assessment proceedings. However, before the Learned CIT(Appeals), the same were produced as an additional evidence. Hence in terms of Rule 46A of Income Tax Rules, the Learned CIT(Appeals) sought for a remand report from the Learned Assessing Officer with regard to the impugned issue. Since the Learned Assessing Officer did not .....

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unt of additions in assets on accepting assessee s explanation without appreciating the facts and circumstances recorded by Assessing Officer in his assessment order as well as remand report dated 06.12.2005 . 20.2. The Learned DR relied on the order of the Learned Assessing Officer. In response to this, the Learned AR argued that since no adverse findings were given by the Learned Assessing Officer during remand proceedings towards this issue, he prayed for deletion of this disallowance. 20.3. .....

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ined to interfere with the decision of the Learned CIT(Appeals) on this issue. Accordingly, ground no. 12 raised by the revenue is dismissed. In the result, the revenue s appeal in ITA NO. 426/Kol/2006 is Partly Allowed. ITA No. 1808/KOL/2007 - ASSESSEE s APPEAL 21. This appeal of the assessee arises out of the order of the Learned CIT(Appeals) u/s 154 of the Income Tax Act, 1961 (hereinafter referred to as the Act ) dated 16.5.2007 for the Asst Year 2002-03. The brief background of this appeal .....

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tification petition u/s 154 of the Act by the assessee on 21.2.2006 and in response to the same, the Learned CIT(Appeals) passed an order u/s 154 of the Act on 16.5.2007 modifying his earlier order by adjudicating Ground No. 4 raised by the assessee in the original grounds of appeal. For the sake of convenience, the Ground No. 4 raised before the Learned CIT(Appeal s) is reproduced herein:- That on law as well as on the facts and in the circumstances of the case the Learned Assessing Officer whi .....

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ts and in the ci rcumstances of the case, the Learned CIT(Appeals) erred in holding that if deduction is claimed u/s.80HHD of the Income Tax Act, 1961 (herein after referred to as Act) on profits of a unit deduction under any other section of Chapter VIA cannot be allowed on the profits of the same unit. 2. That on the facts and in the circumstances of the case, the Learned CIT(Appeals) was not justified in confirming the action of the AO in reducing the eligible profit of Bangalore unit by 36.2 .....

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Learned CIT(Appeals) erred in confirming the action of the AO in reducing 36.21% of the eligible profit of the Bangalore unit while computing deduction u/s. 80IA ignoring the fact that the actual relief granted u/s. 80HHD was restri cted to only 30% of the eligible profits. 5. That without prejudice to the grounds taken here-inabove, the Learned CIT(Appeals) should have held that deduction u/s. 80IA should be first computed and deducted from the profits and gains of the business before computing .....

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the Learned DR vehemently supported the orders of the lower authorities. 21.3. We have heard the rival submissions and perused the materials available on record. Chapter VI-A of the Income Tax Act, 1961 deal s with various deductions. Part A of this Chapter detail s the scheme of deduction, while Part C contains the provisions for allowing certain deductions in respect to profit s and gains from a business. Section 80A falling in Part A , provides that deductions are to be made from the gross t .....

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Act shall be deemed to be the amount of income of that nature derived or received by the assessee and included in his gross total income. 21.5. Section 80IA(9) which falls in Part C of Chapter VIA, provides as under:- Where any amount of profits and gains of an Undertaking or an enterprise is claimed and allowed under this section for any assessment year, deduction to the extent of such profits and gains shall not be allowed under any other provisions of this Chapter under the heading C - Deduc .....

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strial Undertaking, and the manner of computation of deductions under both these sections. Hon ble Bombay High Court in the case of Associated Capsules Pvt. Ltd. -vs.- DCIT reported in 237 CTR (Bom.) 408 considered the decision of the Hon ble Delhi High Court in the case of Great Eastern Export -vs.- CIT reported in 237 CTR 264 noted that the Hon ble Delhi High Court had failed to consider one of the arguments of the ld. counsel for the revenue in that case. Ld. counsel had argued that in the ma .....

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ent and therefore could not have arrived at the conclusion that indeed without rejecting that argument. The Hon ble Bombay High Court expressed its decent with the views that Hon ble Kerala High Court in the case of Olem Exports ( India) Limited -vs.- CIT reported in 229 CTR (Ker.) 206 for the same reasons. 21.7. The Hon ble Bombay High Court noted that the object of section 80IA(9) was to prevent tax payers from claiming repeated deductions in respect of the same amount of the eligible income a .....

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assessee. We hold that a provision introduced for restrict ing the scope of a benefit another provision has to contain a non-obstante clause which is found in sect ion 80HHD and on this count alone, any attempt to curtail the basis of the profi t eligible for deduction under section 80HHD should be avoided. 21.8. Section 80IA(9) should at the most be seem to be achieving the same thing as is achieved by section 80AB and may be taken as a provision introduced to achieve greater clari ty on this .....

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uble deduction of same profit :- Under any provisions of Chapter VIA of the Income Tax Act, various deductions from the profit s and gains were allowed to specified assesses, subject to fulfilling certain requirements specified under the relevant sections. The total deductions under Chapter VIA of the Income Tax Act were restricted to the gross total income in respect of assessee as a whole . However, in certain cases, it was noticed that certain assessee s claim more than 100% deduction on such .....

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section 80HHD and 80IA, so that such unintended benefits are not passed on to the assessee. This amendment is sought to be int roduced ret rospectively w.e.f. 1.4.1990 (emphasis supplied) . 23. It is also pertinent to get into the provisions of section 80P(3) of the Act at this juncture. Section 80P(3) reads as under:- In a case where the assessee is entitled also to the deduction under section 80HH or section 80HHA or section 80HHB or section 80HHC or section 80HHD or section 80I or section 80I .....

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milar language as reduced by is missing in section 80IA(9). This goes to prove that it was never the intention of the legislature that the deductions under section 80IA should be granted on the profits after reducing the deduction under section 80HHD of the Act. 23.2. We are al so of the opinion that deductions under Chapter VI-A are objective specific. It is possible that an assessee s business fulfils more than one object sought to be achieved. In such a situation, an assessee should be entitl .....

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e claims deduction under section 80HHE, it should not be able to claim a deduction under section 80HHF. 23.3. The whole issue cannot also be looked into from another angle. Section 80IA postulates a fic tion that in determining the profit s eligible for deduction, the eligible undertaking shall be deemed to be the only source of income. Consequently, therefore, one would have to ignore the profits made by other Undertaking or activities of the assessee. Quantum of deduction under section 80IA wo .....

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o the fact that the objectives sought to be achieved or different, there should be no occasion to take one deduction into the other. 23.4. The rule of harmonious interpretation is a well accepted rule of interpretation. A section or part of sect ion should be interpreted so that it is in harmony with other provisions of the Act. Further no part of the statute should be regarded as a surplus age. Allowing deduction under only one section will make the later part of sub-section (9) of section 80IA .....

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cases did not make any provision for reduction of the gross total income by the amount of deduction admissible to the assessee under section 80HH. It was only by an amendment of the said section 80J that the provision for reducing the gross total income by the amount of deduction under section 80HH by the Direct Taxes (Amendment) Act. 1974. with effect from 1-4-1974 was inserted. Section 80-I was inserted in its present form by the Finance (No. 2) Act, 1980 with e ffect from 1-1-1981, and by the .....

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ear 1974 but no such provision was made in so far as section 80-I was conc erned. This clearly contraindicates that section 80HH(9) by itself meant that deduction allowed under section 80HH is to be reduced from the gross total income for granting the benefit of section 80J and, for the matter, of section 80-I. It was provided in section 80J itself by later amendment while no such provision was made in section 80-I even though inserted on a later date. The provision of law, is, therefore clear .....

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tion or an incentive have to be const rued in a manner that promotes the objectives sought to be achieved and not frustrate it . 23.7. We al so find that the impugned issue is squarely covered by the decision of the apex court in the case of JCIT vs Mandideep Engineering & Packaging India P Ltd reported in (2007) 292 ITR 1 (SC). The question raised before the Hon ble Supreme Court and the decision taken thereon is reproduced herewith for the sake of convenience and clari ty:- The point invol .....

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t both the sections are independent and, therefore, the deductions could be claimed both under Sections 80-HH and 80-I on the gross total. Against this judgment a Special Leave Petition was filed in this Court which was dismissed on the ground of delay on 21.07.2000 [see 245 ITR 71 (St.)]. The decision in J.P. Tobacco Products Pvt. Ltd. (supra) was followed by the same High Court in the case of CIT vs. Alpine Solvex (P) Ltd. in ITA No. 92 of 1999 decided on May 2, 2000. Special Leave Petition ag .....

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