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2015 (12) TMI 1283 - ITAT MUMBAI

2015 (12) TMI 1283 - ITAT MUMBAI - TMI - Disallowance of deduction u/s 36(1)(viii) - Held that:- Admittedly, in the case in hand, the assessee has transferred the amount of ₹ 200 crores in the special reserve created during the subsequent year, out of the general reserve created during the year under consideration, whereas the claim of deduction has been made in respect of the amount of ₹ 161 crores only. We, therefore, direct the AO to allow the claim for the deduction to the assess .....

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I ] wherein the Tribunal has taken a view that in case of salary/wage revision, what is important is not the date of signing the agreement nor the date of approval granted by the DRE, what is important is the effective date of commencement. The Tribunal, while relying upon the decision of the Hon'ble Supreme Court in the case of "Bharat Earth vs. CIT [2000 (8) TMI 4 - SUPREME COURT], held that in such a case the incurring of liability was certain and the same could also be estimated with reasona .....

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d by the branches in other contracting states. Since the issue is squarely covered by the decision of the co-ordinate bench of the Tribunal in the own case of the assessee, hence, respectfully following the same, the appeal of the Revenue is treated as allowed in the same lines. - ITA No. 4619/M/2012, ITA No. 4873/M/2012 - Dated:- 4-11-2015 - D. Karunakara Rao, AM And Sanjay Garg, JM For the Appellant : Shri Jasbir Chouhan, Sr. AR For the Respondent : Shri C. Naresh, DR ORDER Per Sanjay Garg, Ju .....

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ming the disallowance of deduction u/s 36(1)(viii) of the Income Tax Act on the ground that no special reserve had been created whereas on facts the requisite reserve had been created and hence no disallowance is warranted. The Ld CIT(A) ought to have noted that from the audited and approved accounts for the y.e 31/03/2008, amounts transferred to Revenue and other reserves from the profits for the relevant year amounted to ₹ 651,05 Cr and the same was maintained thereafter without being wi .....

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Ld CIT(A) failed to appreciate that in the financial year 2008-09 following the current financial year 2007-08 the appellant had as a matter of abundant caution transferred a sum of ₹ 200 Crores from profits to reserve to be maintained as a special reserve and hence based on the decision of ITAT Delhi in the case of Power Finance Corporation Ltd -( 2008-TIOL-475-ITAT-DEL ) the claim of the appellant should have been allowed. 3.1 The Ld CIT(A) erred in confirming the disallowance of provis .....

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uction though the same could be quantified based on reasonable estimate only. Reliance is placed on the decision of ITAT in Neyveli Lignite Corporation v ACIT 93 TTJ 685 (Chen) 4.1 The Ld CIT (A) erred in confirming the disallowance u/s 14A computed as per Rule 8D at ₹ 65.37 crore on a tax free income of ₹ 60.81 crore over looking fact that the appellant had himself quantified the disallowance at ₹ 6.05 crore being 0.5% of average investments earning tax free income. The CIT (A .....

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rovided for in the Double Tax Avoidance agreements. The CIT (A) had considered the provisions of section 91 which will apply only when there is no DTAA and where there is a DTAA, the rates prescribed in DTAA should have been the basis." Ground Nos.1 & 2: 3. The issue raised vide ground Nos.1 & 2 is relating to the confirmation of disallowance of deduction in section 36(1)(viii) of the Income Tax Act. The assessee during the year claimed deduction under section 36(1)(viii) of the Act .....

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he general reserve. Aggrieved by the order of the AO, the assessee preferred appeal before the Ld. CIT(A). 4. After considering the submissions of the assessee, the Ld. CIT(A) observed that there was no dispute regarding the eligibility of the assessee to claim deduction under section 36(1)(viii) of the Act. The assessee had claimed that it had transferred ₹ 651.05 crores to revenue and other reserves during the Financial Year 2007-08 relevant to A.Y. 2008-09 i.e. the year under considerat .....

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ee was required to transfer the 20% of the profit in the special reserve during the year itself. However, the assessee had transferred the required amount in the general reserve. Subsequent transfer of any fund amount to special reserve during the subsequent year would not entitle the assessee to claim deduction during the year under consideration. He, therefore, rejected the claim of the assessee and upheld the disallowance made by the AO. 5. Before us, the Ld. A.R. of the assessee, at the outs .....

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36(1)(viii) of the Act. The Tribunal, while holding so, observed that the inference from the words "Before making any deduction under this clause carried to such reserve account" can be drawn that the requirement of special reserve is to be complied with at the time of considering the claim of deduction and it does not mean that the amount should be transferred to the special reserve before making any claim of deduction. The Tribunal further in para 26 of the order has observed in the .....

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₹ 53 crores, the special reserve created during F.Y. 1997-98 was out of the remaining profit of F.Y. 1996-97 and hence to this extent the reserve created in F.Y. 1997-98 should be considered for allowing the deduction under section 36(1)(viii) of the Act. The proposition of law laid down by the Tribunal in this respect is that the amount of the previous year which was transferred to the special reserve out of the general reserve created during the subsequent year should be considered for d .....

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, therefore, direct the AO to allow the claim for the deduction to the assessee in the light of the decision of the co-ordinate bench of the Delhi Tribunal in the case of "M/s. Power Finance Corporation Ltd. vs. JCIT" (supra). Ground Nos.3.1 & 3.2 6. Ground Nos.3.1 & 3.2 relate to the disallowance of provision towards liability arising on account of wage revision payable to employees. According to the assessee the provision made for excess payment of wages payable to the employ .....

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he assessee during the year under consideration, hence the assessee was not entitled to create provision for the wage revision. Being aggrieved, the assessee has come in appeal before us. 7. The Ld. A.R. of the assessee, at the outset, has submitted that the issue is squarely covered by the decision of the co-ordinate bench of the Tribunal in the case of "Tata Communications Ltd. vs. DCIT" ITA Nos.3062 & 3438/M/2003 vide order dated 05.12.12 wherein the Tribunal has taken a view th .....

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n may not be possible. In the case in hand also as per the agreement and the policy, the wage revision was certain and it could have been reasonably estimated also. Hence, the provision made by the assessee towards wage revision was allowable. Respectfully following the decision of the coordinate bench of the Tribunal in the case of "Tata Communications Ltd." (supra), this issue is accordingly decided in favour of the assessee and the AO is directed to allow the claim of the provision .....

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f "CIT vs. Reliance Utilities and Power Ltd." (2009) 313 ITR 340 (Bom) to stress that if the own funds of the assessee are available, then the presumption will be that the assessee had used the own funds for making the investment and no interest disallowance is required to be made in relation to the investments made by the assessee out of his own funds. In relation to the disallowance of administrative expenses under rule 8D(2)(iii), the Ld. A.R. has submitted that the AO had included .....

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not be considered, only the shares taken as investment in the account be considered for computation of disallowance of expenditure under rule 8D. The Ld. A.R. has submitted that the dividend earned in respect of shares held in stock in trade is incidental to the business of the assessee and the investment in the shares held as stock in trade was not made for earning of exempt income. 9. We have considered the rival submissions. It may be observed that in the case of 'Godrej & Boyce Manu .....

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enditure. The satisfaction of the Assessing Officer has to be arrived at, having regard to the accounts of the assessee. Sub section (2) does not ipso facto enable the Assessing Officer to apply the method prescribed by the rules straightaway without considering whether the claim made by the assessee in respect such expenditure is correct. The satisfaction of the Assessing Officer must be arrived at on an objective basis. In a situation where the accounts of the assessee furnish an objective bas .....

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the assessee. 10. However, a perusal of the assessment order reveals that the AO has not followed the guidelines of objective satisfaction as laid down by the Hon'ble Bombay high Court in the case of Godrej & Boyce (supra) while making the disallowance . He without recording any reasoning for his dissatisfaction with regard to the working/claim of the assessee, straightway applied Rule 8D against the mandate of the provisions of section 14A of the Income Tax Act. The ld. CIT(A) also igno .....

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s were sufficient to meet the investment. Similar view has been taken in the case of "CIT vs. HDFC Bank Ltd." in ITA No.330 of 2012 decided on 23rd July 2014 by the Hon'ble Bombay High Court. 12. Further, we find that this Tribunal in the case of "DCIT vs. India Advantage Securities Ltd." in ITA No.6711/M/2011 vide order dated 14.09.2012 while relying upon the decision of the Hon'ble Kerala High Court in the case of "CIT vs. Smt. Leena Ramachandran (339 ITR 296) .....

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g precedent upon this Tribunal. In view of our above discussion of the matter, we direct the AO to decide this issue afresh in the light of the our observations made above and taking into consideration the judicial pronouncements in the case of "Godrej & Boyce Manufacturing Co. Ltd. Vs. DCIT" (supra), "CIT vs. Reliance Utilities and Power Ltd." (supra), "CIT vs. HDFC Bank Ltd."(supra) and in the case of "India Advantage Securities Ltd." (supra). Needle .....

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