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2015 (12) TMI 460

MI 238 - DELHI HIGH COURT] has held that where there is no exempt income there cannot be any disallowance u/s 14A of the Income Tax Act. Therefore respectfully following the decision of Honourable Delhi high court we reverse the order of CIT (A) confirming disallowance - Decided in favour of assessee.

Disallowance being payments made under Voluntary retirement scheme - Held that:- The claim of the assessee is allowable u/s 35DDA of the act and no deduction u/s 37(1) is permitted for expenditure on voluntary retirement scheme. In none of the decision cited before us, Honourable courts were concerned about the allowability of claim of VRS expenditure u/s 35DDA of the act as well as u/s 37(1) of the act. Further all the cases cited pertains to AY prior to introduction of section 35DDA of the act except in case of CIT V KJS India Private Limited (2011 (9) TMI 667 - Delhi High Court ), however provision of section 35DDA was not brought to the notice of the court. Therefore these decisions render no help to the cause of the assessee. Thus we confirm the order of CIT (A) disallowing the claim of the assessee u/s 37(1) of the act on account of payment made under voluntary retire .....

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r also. In view of this we confirm the order of CIT (A) deleting disallowance - Decided against revenue - ITA No. 4155 & 4178/Del/2011 - Dated:- 2-12-2015 - SHRI H.S.SIDHU, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER For the Petitioner : Sh. Santosh Aggarwal, Adv For the Respondent : Sh. P.Dam Kanunjna, Sr. DR ORDER Per Prashant Maharishi, A M 1. These are cross appeal by parties directed against the order of the Ld. CIT (A)-VIII, New Delhi dated 08.07.2011 for the Assessment Year 2008-09. 2. In ITA No 4155/ Del /2011 assessee has raised the following grounds:- 1. That the order of the Commissioner of Income-tax (Appeals) - VIII, New Delhi, dated 08.07.2011, is wrong on facts and bad in law; 2. That the Commissioner (Appeals) erred in upholding the disallowance of ₹ 916/- under Section 14A of the Act. He failed to appreciate that no expenditure was incurred in relation to the income by way of dividend and as such no expenditure was to be deducted under Section 14A of the Act; 3. That the Commissioner (Appeals) erred in upholding the disallowance of ₹ 6,08,74,376/-paid to the employees in view of the Voluntary Retirement Scheme; 4. That the Commissione .....

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st Limited V CIT 378 ITR 33 has held that where there is no exempt income there cannot be any disallowance u/s 14A of the Income Tax Act. Therefore respectfully following the decision of Honourable Delhi high court we reverse the order of CIT (A) confirming disallowance of ₹ 916/-. Hence, Second ground of appeal is allowed. 7. Third ground of appeal is against the disallowance of ₹ 6,08,74,376/- being payments made under Voluntary retirement scheme. During the year appellant has claimed the deduction of ₹ 7,60,92,970/- on account of payment made under voluntary retirement scheme. However AO disallowed that sum and allowed only 20 % of the total claim made by the assessee u/s 35DDA of The Income Tax Act, resultantly he disallowed ₹ 6,08,74,376/- out of the total claim of ₹ 7,60,92,970/-. Ld AO was of the view that as the claim of the assessee for allowance of VRS payments , same is covered by provisions of section 35DDA of The Income Tax Act and hence, not allowable u/s 37(1) of the Act. Assessee agitated the issue before CIT (A) who also confirmed the order of AO on same reasoning and therefore assessee is in appeal before us on this ground. 8. Before .....

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Where the undertaking of an Indian company entitled to the deduction under sub-section (1) is transferred, before the expiry of the period specified in that sub-section, to another company in a scheme of demerger, the provisions of this section shall, as far as may be, apply to the resulting company, as they would have applied to the demerged company, if the demerger had not taken place. (4) Where there has been reorganization of business, whereby a firm is succeeded by a company fulfilling the conditions laid down in clause (xiii) of section 47 or a proprietary concern is succeeded by a company fulfilling the conditions laid down in clause (xiv) of section 47, the provisions of this section shall, as far as may be, apply to the successor company, as they would have applied to the firm or the proprietary concern, if reorganization of business had not taken place. (5) No deduction shall be allowed in respect of the expenditure mentioned in sub-section (1) in the case of the amalgamating company referred to in sub-section (2), in the case of demerged company referred to in sub-section (3) and in the case of a firm or proprietary concern referred to in sub-section (4) of this section .....

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siness or profession", if it is found that : (i) it is not an expenditure of the nature described in sections 30 to 36 ; (ii) it is not in the nature of capital expenditure or personal expenses of the assessee ; (iii) it must have been laid out or expended wholly and exclusively for the purposes of the business or profession ; and (iv) there is no specific prohibition for its allowance such as section 37(2B), (3) and (4) or as provided in other sections. From the aforesaid two sections, it is apparent that, under section 37, only revenue expenditure, which is expended wholly and exclusively for the purpose of business or profession, can be allowed to be deducted in computing the income while under sections 30 to 36, it could be either revenue expenditure or capital expenditure. Further, section 37 as such is a general provision which provides for deduction of expenditure while computing the income chargeable under the head "Profits and gains of business or profession" of the assessee, if the expenditure is of revenue nature and not personal expenses of the assessee and if the said expenditure is laid out or expended wholly and exclusively for the purpose of business .....

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of CIT V Simpson and Co Limited 230 ITR 703 which is also on the issue of whether the VRS expenditure is capital or revenue expenditure. e. CIT V Swan Mills Limited 39 Taxmann.com 112 ( Bom) the issue before high court for AY 2000-01 was whether VRS payments are allowable on closure of business as revenue expenditure and court held that same is allowable as revenue expenditure. 15. In none of the decision cited before us, Honourable courts were concerned about the allowability of claim of VRS expenditure u/s 35DDA of the act as well as u/s 37(1) of the act. Further all the cases cited above pertains to AY prior to introduction of section 35DDA of the act except in case of CIT V KJS India Private Limited 340 ITR 380 (Delhi), however provision of section 35DDA was not brought to the notice of the court. Therefore these decisions render no help to the cause of the assessee. 16. In view of above facts we confirm the order of CIT (A) disallowing the claim of the assessee of ₹ 6,08,74,376/- u/s 37(1) of the act on account of payment made under voluntary retirement scheme. Therefore ground no 3 of the appeal is dismissed. 17. Ground No 4 of the appeal is against not granting adjust .....

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2008 where the acknowledgement date is 1.10.2008, shall be treated as having filed on 30.9.2008. Hence AO is directed to allow the claim of carry forward of losses as same is permissible according to the law. We reverse the finding of CIT (A) on this count. Accordingly ground no 5 of the appeal is allowed. 22. In the result appeal of the assessee is partly allowed. ITA No 4178/Del/2011 ( Revenue) 23. Ground no 1 of the revenue s appeal is general in nature and therefore dismissed. 24. Ground no 2 of the appeal is against the deletion of disallowance of ₹ 2247126/- made on account of prior period expenses. During assessment proceedings AO noticed that the appellant company had claimed prior period expense of ₹ 22,47,126/-. Accordingly, he required the appellant company to explain as to why the expenses in question should not be disallowed and added back to the declared income for the AY under consideration. Assessee submitted that such expenses are settled for payment in the AY under reference and this is the policy of the assessee company booking such expenses and Further Hon'ble ITAT had allowed the prior period expenses in the AY 2004-05. Assessee consistently fol .....

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were deposited with IFCI Ltd. and interest income of ₹ 2925000/- was credited for the FY 2006-07 on estimate basis. However, on final settlement IFCI Ltd. allowed interest of ₹ 1847449/- only as communicated vide their letter No.8577 dated 21.01.2008. Accordingly, the difference of ₹ 10,77,555/- was reversed by crediting the same to interest income account and this is how the income of ₹ 2925000/- offered to tax in FY 2006-07 has been reduced to ₹ 1847445/-. In support of its claim, the appellant company has filed journal vouchers dated 31.03.2007 and 30.09.2007. Thus, it may be seen that the amount of ₹ 1077555/- actually represents the reversal of interest income which was shown on estimate basis for the AY 2007-08. In my view, the amount in question does not represent the prepaid expenses for the reasons discussed herein before and accordingly, the AO is directed to delete the disalowar.ee of ₹ 1077555/-. b. Bonus - It is submitted by the Id. counsel for the appellant that the amount in question represented a provision created for FY 2006-07 and forms part o total disallowance of ₹ 9199024/- suo motto made by the appellant company .....

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