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2015 (11) TMI 1298 - ITAT MUMBAI

2015 (11) TMI 1298 - ITAT MUMBAI - TMI - Reopening of assessment - excess deduction allowed u/s 36(1)(viii) and excess depreciation claimed - Held that:- As per the provisions of section of 36(1)(viii) of Income Tax Act, 1961, the assessee can claim deduction up to 40% of its income by way of creation of reserve. Therefore, a limit was placed by the second proviso on the amount which can be transferred to the reserve. This limit is there in the section since the beginning. Otherwise the assessee .....

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n AY 2004-05 and ₹ 71.65 er in AY 2005-06.However, as per the amended provision, assessee’s eligibility for enhanced deduction is available only, if it is found that amount withdrawn out of the reserve had been offered for taxation u/s.41(4A). However, it is not clear from the record as to whether the amount so withdrawn by the assessee has been offered for tax. Therefore, we restore the matter back to the file of the AO for finding out the factual position and for deciding afresh. - Decid .....

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espect of these items is in accordance with the New Appendix to the I.T. Rules. These are not furniture and fixtures. Accordingly, there is no merit in AO’s action for treating same as furniture and fixture so as to reduce to rate of depreciation from 15% to 10%. The AO is directed to allow depreciation @15% on these items. - Decided in favour of assessee - ITA No.5434&5435/Mum/2011 - Dated:- 9-10-2015 - SHRI D. MANMOHAN, VP AND SHRI R.C.SHARMA, AM For The Revenue : Shri Sanjeev Jain For The Ass .....

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sing finance and other financial activities. The original assessment was completed u/s 143(3). The assessment was reopened to tax excess deduction allowed u/s 36(1)(viii) and excess depreciation claimed. It was claimed by the assessee that it made disclosure of all material facts truly and fully not only with regard to the claim for deduction related to special reserve under Section 36(1)(viii) but also in respect of claim of depreciation. Hence, the criterion of "reason to believe" th .....

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e of opinion. Reliance was placed on CIT vs Kelvinator India Ltd. (256 ITR 1) which has since been approved by Supreme Court Larger Bench (20-10 TIOL 06), IPCA Laboratories Ltd. Vs. Gajanand Meena (251 ITR 416). 4. With regard to deprecation ld. AR has placed reliance on the decision of Kolkata High Court in the case of Pressman Advertising & Marketing Ltd. reported in 142 Taxman 17 (Kol),Allahabad Bank v CIT (1992) 108 CTR (Cal) 186 : (1993) 199 ITR 664 (Cal) and submitted that reopening wa .....

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s plant and machinery). As per ld. AR this is a case of change of opinion, there was no tangible material before the AO to come to a conclusion different from the one reached while passing order u/s.143(3). Our attention was invited to the assessment year wherein claim for deduction u/s.36(1)(viii) and claim for deduction u/s.32 in respect of plant and machinery were examined and allowed by the AO on the basis of material on record. 7. Further ld. AR also relied on the order of ITAT in the asses .....

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6(1)(vii) contrary to the law. 8. Ld. AR contended that the disputed items of fixed assets are Air Conditioners, ECR, Printers, Typewriters, Mobile Phones, Refrigerators, Water coolers, Photocopier, EPBX, Fax, fixed assets schedule 5 shows classification of assets as furniture and fixtures and other equipment. Claim for depreciation was supported by Tax Audit Report. Claim for depreciation is clearly in accordance with the New Appendix to the IT Rules specifying rates of depreciation in terms of .....

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l contentions and deliberated on the judicial pronouncements referred by lower authorities in their respective order and cited by ld. AR before us in the context of factual matrix of the case. From the record we found that the notice u/s 148 has been issued within four years from the end of the relevant assessment year. From the facts of the case, it can be concluded that there was prima facie case of escapement of income on account excess claim of deductions u/s 36(1)(viii) and there was also e .....

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the claim to ₹ 71,27,29,633/- as against ₹ 91,00,00,000/- claimed by assessee. As per ld. AR amendment to section 36(1)(viii) by the addition of the word maintained was prospective in operation and applied to Special Reserve created from AY 1998-99. 11. We have considered rival contentions. The assessee is a public company formed and registered in India with the main object of carrying on the business of providing long term finances for construction or purchase of houses in India fo .....

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me amount was claimed as deduction u/s.36(1)(viii) of the Act. However, on perusal of the Schedule 2, it was noticed by AO that the assessee had carried only ₹ 91,00,00,000/- to the reserve created for this purpose as required under section 36(1)(viii). Further on a perusal of Schedule 2 of the Balance sheet filed along with the Annual Report, share capital and general reserve, it was noticed as under :- The share capital Rs.74,99,63,475/- The General Reserve Rs.202,75,02,034/- Total Rs.27 .....

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al and of the General Reserve, no allowance under this clause shall be made in respect of such excess." In this case, the twice of the share capital and general reserve worked out to ₹ 555,49,31,018/- whereas the aggregate of the amount carried to such reserve works out to ₹ 484,22,01,385/-. Thus, during the year the assessee could claim deduction to the extent of ₹ 71,27,29,633/- (555,49,31,018-484,22,01,385), whereas the assessee carried to Reserve an amount of ₹ 9 .....

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ads as under :- "Provided that where the aggregate of the amounts carried to such reserve account from time to time exceeds twice the amount of the paid-up share capital and of and of the general reserves of the corporation or, as the case may be, the company, no allowance under this clause shall be made in respect of such excess." 12. Thus, we found that the Assessing Officer has correctly worked out the actual deduction allowable as per proviso to section 36(1)(viii) which has been r .....

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rovisions that the assessee had claimed excess deduction to the extent of ₹ 20,47,92,181/-. For the purposes of working out the deductible amount, amount carried to reserve from time to time has to be considered. There is no dispute that the assessee did carry a sum of ₹ 484,22,01,385/- to the reserve from 1.4.1997 till 31.3.2003. There is also no dispute that twice of the share capital and general reserve worked out to ₹ 555,49,31,018/-. The amendment in section 36(1)(vii) did .....

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uction or purchase of houses in India for residential purposes, an amount not exceeding forty per cent of the total income (computed before making any deduction under [this clause and] Chapter VI-A) carried to such reserve account. Provided that the corporation [or, as the case may be, the company] is for the time being approved by the Central Government for the purposes of this clause: Provided further that where the aggregate of the amounts carried to such reserve account from time to time exc .....

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development of infrastructure facility in India or by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes, an amount not exceeding forty per cent of the profits derived from such business of providing long-term finance (computed under the head "Profits and gains of business or profession" [before making any deduction under this clause)) ca .....

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ct of such excess. 15. It may be noted that the second provision of section contains the method of aggregation of amounts carried to such reserve both pre amendment and post amendment period. 16. Following sub section (4A) was simultaneously inserted in section in section 41 of Income Tax Act,1961 by Finance Act,1997 w.e.f. 1.04.2008. 4A) Where a deduction has been allowed in respect of any special reserve created and maintained under clause (viii) of sub-section (1) of section 36, any amount su .....

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per this amendment, any withdrawal from the reserve becomes taxable and the provision have been made that the reserve should be maintained. 18. The facts of the case are that the assessee created a special reserve in financial year 1989-90. The assessee withdraw following amounts from the reserve as per the details filed by the assessee during the course of hearing on 14.08.2015: S.No. Financial year Amount 1 1996-97 4,00,00,000 2 2000-01 17,00,00,000 3 2001-02 20,00,00,000 4 2002-03 10,00,00,0 .....

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ion up to 40 % of total income as envisage in the section 36( 1) (viii) of Income Tax Act,1961. 20. In the instant case, it is not clear as to whether the assessee has excluded the amount withdrawn from the reserve as mentioned above in the aggregate of amounts carried to the reserve, there was excess deduction claimed by the assessee in AY 2004-05 and AY 2005-06 to the tune of ₹ 20.47 cr in AY 2004-05 and ₹ 71.65 er in AY 2005-06. 21. Furthermore, General Reserve as considered in th .....

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