TMI Blog2013 (9) TMI 1071X X X X Extracts X X X X X X X X Extracts X X X X ..... erialized during the year but not offered for taxation in case of demerger - whether the expenses and income could be considered as income and expenses of the successor - Held that:- the income arising after the demerger is the responsibility of the “resulting company” to be taxed as per law - assessee to place the relevant evidence before the AO through which it can be demonstrated that amount had already been offered to tax - Remanded back for statistical purpose. Addition of ₹ 6,60,52,000/- being total legal and preparation fees treated as capital expenditure - Held that:- None payments can be categorized as capital in nature since no enduring benefit was derived and nor any asset was brought into existence - expenditure was connected with the business activity of the assessee - Decided in favor of Assessee Exclusion under provisions for gratuity - which is an unascertained liability for computation of book profit u/s.115JB - Held that:- provision for gratuity was made on acturial valuation; hence, it was not an unascertained liability - Decided in favor of Assessee Adjustment of book profit u/s. 115J - Held that:- AO to do afresh adjudication - Remanded back fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 14A of the IT Act. Likewise, learned CIT(A) has also not discussed the applicability of the provisions of Section 14A of IT Act, however, after considering the merits of the case, deleted the addition. With this clarification, we have examined the facts and the issue as emerged from the corresponding assessment order passed u/s. 143(3), dated 26.12.2008. It was noted by the AO that the assessee had claimed a huge amount of interest expenditure of ₹ 19360.59 lacs, as per the following bifurcation. (Rs. in lacs) Particulars Amount Interest on Term Loans 8981.35 Working Capital 8184.50 Others 677.63 Bank Charges Guarnatee Fees 591.65 19435.13 Less : Interest Capitalised 74.54 19360.59 4.1 At the same time, it was also found by the AO that the assessee had made the investment of ₹ 5,47,709.74 lacs on which dividend earned w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , except minor investment of ₹ 11.25 lacs was inherited in the demerger exercise. The investment in shares was due to the restructuring carried out at the behest of GOG. The investments were in the form of shares of subsidiary companies as part of the financial restructuring plan approved by the Government of Gujarat which was integral to the demerger. This was clearly commercially expedient for the appellant company. The business itself was viable only under the plan of restructuring, which required the company to have cross-holdings in the unbundled companies of GEB. In fact, the appellant became the holding company of the generating and transmission companies. Looking to the facts and circumstances of the case, I am of the opinion that there was no diversion of borrowed funds for non-business purposes. Accordingly, the addition of ₹ 18796.82 lacs is directed to be deleted. 6. With this factual background, we have heard both the sides. Learned DR has primarily placed reliance on a decision of respected Special Bench of ITAT Mumbai in the case of ITO V/s. Daga Capital Management Pvt. Ltd., 117 ITD 169 (Mum) (SB). Learned DR has also pleaded that in one of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the property in the books of accounts immediately before the demerger which was transferred. The AO has also to examine the financial position of the resulting company , as defined u/s.2(41A) of IT Act. In general, an undertaking of the demerged company is transferred in a demerger scheme and as a result a resulting company comes into existence. The resulting company in consideration of such transfer of an undertaking of the demergerd company issues shares to the share holders of the demerged company. Therefore, the responsibility of the resulting company was also required to be ascertained by the AO. This is the first aspect, which was not examined by the AO and the order of the Revenue Authorities are silent on this subject. 6.3 Next question is about the huge amount of interest expenditure claimed by the assessee. The AO is required to examine first the correctness of the claim. Whether the interest on term loans, bank charges and guarantee fees were in respect of the business of the assessee. Thereafter, the AO is also required to give a clear finding about the borrowings made by the assessee on which the said interest was paid. The next step is that the AO has to exami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act have also been touched upon. The Assessing Officer was expected to correlate the said discussion with the exempted dividend income u/s.10(33) of the Act. As far as the law pronounced in this regard is concerned, first of all, we have to follow a latest decision of Hon'ble Bombay High Court pronounced in the case of Godrej Boyce Mfg. Co.Ltd. Muimbai vs. Dy.CIT in Income tax Appeal No.626 of 2010 and Writ Petition No.758 of 2010 order dated 12/08/2010, { now reported as 328 ITR 81(Bom) } wherein the Hon'ble High Court has upheld the constitutional validity of section 14A of the I.T. Act, 1961 and held that the Assessing Officer should determine as to whether the assessee has incurred any expenditure (direct or indirect) in relation to dividend income and/or income from mutual fund which do not form part of the total income as contemplated u/s.14A of the I.T. Act, 1961. It has also been directed that the Assessing Officer can adopt a reasonable basis for effecting the apportionment. It has also been observed by the Hon'ble Court that while making that determination, the Assessing Officer should provide a reasonable opportunity to the assessee of producing its account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailed to consider the applicability of Section 14A in its proper perspective, for assessment year 2001-2002 would not bar the Tribunal from considering disallowance under Section 14A in assessment year 2002-2003. c) The decisions reported in Sridev Enterprises (supra), Munjal Sales Corporation (supra) and Radhasoami Satsang (supra) holding that there must be consistency and definiteness in the approach of the revenue would not apply to the facts of the present case, because of the material change introduced by Section 14A by way of statutory disallowance in certain cases. There, the decisions of the Tribunal in the earlier years would have no relevance in considering disallowance in assessment year 2002-2003 in the light of Section 14A of the Act. 73. For the reasons which we have indicated, we have come to the conclusion that under Section 14A(1) it is for the Assessing Officer to determine as to whether the assessee had incurred any expenditure in relation to the earning of income which does not form part of the total income under the Act and if so to quantify the extent of the disallowance. The Assessing Officer would have to arrive at his determination after furnishing an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come under the Act. The Assessing Officer must adopt a reasonable basis or method consistent with all the relevant facts and circumstances after furnishing a reasonable opportunity to the assessee to place all germane material on the record; vii) The proceedings for Assessment Year 2002-03 shall stand remanded back to the Assessing Officer. The Assessing Officer shall determine as to whether the assessee has incurred any expenditure (direct or indirect) in relation to dividend income / income from mutual funds which does not form part of the total income as contemplated under Section 14A. The Assessing Officer can adopt a reasonable basis for effecting the apportionment. While making that determination, the Assessing Officer shall provide a reasonable opportunity to the assessee of producing its accounts and relevant or germane material having a bearing on the facts and circumstances of the case. 6.4 Due to the decision of the Hon ble Bombay High Court, it is legally correct to refer this issue back to the stage of the AO to be decided de novo as per the guidelines of the Hon ble Court. The outcome of the above discussion is that the Additional Ground raised by the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loyee s contribution to PF. 9. Having heard the submissions of both the sides, we are of the considered opinion that the AO has not properly examined the facts of the case, especially the date of payments as declared by the assessee. On the other hand, the assessee has produced all those very details before learned CIT(A), who has, on examination, held in clear terms that there was no payment beyond the due date but it was deposited in advance. From the side of the Revenue, now before us, there is no evidence to contradict the said factual finding of learned CIT(A). We, therefore, hold that there is no fallacy in the view taken by learned CIT(A); hence, the same is hereby confirmed and the ground of the Revenue is thus dismissed. 10. Ground No.2 is reproduced below: On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of ₹ 15,15,54,000/- being net income over expenditure, which was materialized during the year under consideration, but not offered for taxation. 11. During the assessment proceedings, it was noted by the AO that a sum of ₹ 1515.54 lacs were shown in the P L A/c below the line aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he first relates to whether the expenses as well as the income relating to the erstwhile GEB could be considered as income and expenses of the successor, i.e., appellant company. The appellant fairly admits that on this there is no dispute and that the items of income aggregating to ₹ 69,80,04,000/- and the items of expenditure aggregating to ₹ 54,64,51,000/- (net ₹ 15,15,54,000/-) would be includible in the taxable income of the appellant. Hence the addition of the AO in treating this as income of the assessee for the year is upheld. 11.3 After pronouncing this view Ld. CIT(A) has taken a different view in assessee s favour as follows:- It is seen from the table that the assessee, in his computation of income, consistently disallowed the provisions for bad and doubtful and claimed as an expenditure only the amount actually written off during the year. The difference between the two was offered for taxation in the past. The figure of ₹ 39,71,79,000/- is the cumulative provision for doubtful debts of the erstwhile GEB, which had already suffered taxation. Since the same has already been taxed in the earlier years, this figure must be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f any, has to be taxed in the hands of the assessee company being a resulting company. The only question is that there should not be double taxation in respect of the same income in the hands of the assessee. This fact can easily be ascertained by Revenue Department by checking the old records of the assessee. On the other hand, we also hereby direct this assessee to place the relevant evidence before the AO through which it can be demonstrated that the very amount had already been offered to tax in the hands of the assessee. This fact is also required to be placed on record that how much recoveries have been made out of the alleged bad debt amount. With these directions, this ground may be treated as allowed but for statistical purpose only. 14. Ground No.3 is reproduced below: On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of ₹ 6,60,52,000/- being total legal and for preparation fees treated as capital expenditure as these expenditure was incurred for preparation, finalization and filing of annual revenue requirements (ARR), for preparation of power purchase agreements, formulating strategies for deman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Feedback Ventures Ltd were paid certain amounts for preparation, finalization and filing of annual revenue requirement (ARR), petitions before GERC, for preparation of short term power purchase agreements and for formulating strategies for demand side management. M/s. Gujarat Info Petro was paid fees for supporting LAN network, providing IT professionals for facility management services, coordination with BSNL for internet connectivity and for providing and upgrading internet bandwidth. Similarly, GERC was paid fees for approval of power purchase agreements and license fees for intra-state trading. The said license fees are payable annually. Advocate M.G. Ramachandran was paid professional and consultancy fees for advice on statutory and regulatory issues and for representing the assessee before various courts. Similarly Advocates Shri S.N. Shelat and Shri S.B. Vakil were paid professional fees for representing GUVNL before the Gujarat High Court in matters relating to letters patent, appeals and special civil suits. M/s Allianz Securities Ltd were paid professionals fee for restructuring high cost debts. M/s Siemens Ltd were paid annual maintenance contract (AMC) for EPABX system ..... X X X X Extracts X X X X X X X X Extracts X X X X
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