TMI Blog2011 (2) TMI 1405X X X X Extracts X X X X X X X X Extracts X X X X ..... engaged in the business of dealing in government securities, PSU Bonds, commercial papers and other money market instruments. During the course of assessment proceedings, the Assessing Officer noted that the assessee company has earned tax free income of ₹ 2,83,27,397/- from units of UTI, dividend income of ₹ 50 lacs from CCIL and interest of ₹ 15,30,137/- from tax free bonds. After reducing this amount, the assessee has filed the return of income declaring total income at ₹ 299.95 crores. The Assessing Officer noted that the assessee company has debited expenditure under various heads including interest against borrowed money. The Assessing Officer asked the assessee to ascertain the quantum of expenditure incurred to earn the tax free income. 2.2 It was explained by the assessee that an investment of ₹ 5 crore was made in the shares of the CCIL on 24th Aug 2001, which was in line with the Company s broader objective of developing an active secondary debt market in the country. The net worth of the company as on 31st March 2001 stood at ₹ 674.78 crore. The said investment was of a long term nature and the company does not have any matching l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... administrative expenditure has been disallowed. He accordingly submitted that no disallowance of interest u/s 14A should be made. 5.1 The ld DR, on the other hand, submitted that the assessee has not satisfactory explained before the Assessing Officer that no borrowed funds have been utilized by the assessee company in making the investments in shares and securities, the income of which is exempt from tax. He accordingly submitted that the order of the CIT(A) should be upheld. 6 After hearing both the sides, we find the issue involved in the impugned assessment year is 2004-05. Therefore, in view of the decision of the Hon ble Bombay High Court in the case of Godrej Boyce Mfg P Ltd vs ACIT reported in 328 ITR 81, provisions of Rules 8D of IT Rules are not applicable for the impugned assessment year. However, as regards the allocation of interest and other administrative expenses attributable to earning of tax free income, it is the submission of the ld counsel for the assessee that in view of the order passed by the Assessing Officer in the preceding assessment year, no interest should be disallowed and only proportionate administrative expenditure should be disallowed. Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Since the CIT(A) following his order for AY 2003-04 has confirmed the disallowance made by the Assessing Officer and since the Tribunal, for the Assessment Year 2003-04 has restored the issue to the file of the Assessing Officer; therefore, respectfully following the order of the Tribunal in assessee s own case, we restore this issue to the file of the Assessing Officer for fresh adjudication in accordance with law and after allowing due opportunity of being heard to the assessee. We hold and direct accordingly. The ground raised by the assessee is accordingly allowed for statistical purpose. 973/Mum/2009( By the revenue) 10 The only effective ground raised by the revenue reads as under: On the facts and circumstances of the case and in law, the ld CIT(A) erred in directing the Assessing Officer to delete the addition of ₹ 1,09,69,000/- being disallowance of provision for outstanding repo transactions debited to PL account since the expenditure was actually not incurred and was debited on provisional basis. 10.1 Facts of the case, in brief, are that the assessee company has debited an amount of ₹ 1,09,69,000/- under the head provisions for outsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the CIT(A). Various case laws were also cited. It was submitted that since the sale of security has definitely taken place during the year, the resultant loss has to be allowed in computing the business income, notwithstanding the obligation to re-purchase the same security in the second leg of the transaction. It was further submitted that if a provision is made for an accrued liability or loss, the same cannot be disallowed merely for the reason that it is called a provision . It was submitted that what is important is that the liability or the loss must have crystallised during the year and it is not dependent on happening or not happening of any future uncertain event. The scheme of entries of repo transaction and the disclosures of the relevant account and balance sheet and profit loss account were brought to the notice of the CIT(A). It was further submitted that the loss in repo transaction is actual loss and technically called as provision as mandated by the RBI guidelines. 13 Based on the arguments advanced by the assessee, the CIT(A) deleted the disallowance by holding as under: 5.3 I have carefully considered the facts of the case and submissions made by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se repo transactions issued by the RBI, he submitted that securities sold/purchased under repo should be accounted as an outright sale/purchase. Referring to clause n he drew the attention of the Bench to the following: n Since the debit balances in the Repo Price Adjustment Account at the end of the accounting period represent losses not provided for in respect of securities offered in outstanding repo transactions, it will be necessary to make a provision therefore in the Profit Loss account. 14.1 He submitted that since the accounting method followed by the assessee is in conformity with the guidelines issued by the RBI and since the CIT(A) deleted the addition made by the Assessing Officer on the basis of various guidelines issued by the RBI relating to repo transactions; therefore, the same is in order and no interference is called for. He accordingly submitted that the ground raised by the revenue should be dismissed. 15 We have considered the rival submissions made by both the parties, perused the orders of the authorities below and the paper book filed on behalf of the assessee. We have also gone through the guidelines issued by the RBI for uniform accounting ..... X X X X Extracts X X X X X X X X Extracts X X X X
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