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TMI Blog2011 (9) TMI 1026X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee on 1-4-2008. The Ld. Counsel submitted that notice is beyond period of six years and the time limit would expire on 31-3-2008, therefore, the notice was beyond time. 4. On the other hand, Ld. DR submitted that notice was served on the assessee on 31-3-2008 itself and he produced the original records to prove the date of service. 5. We have considered the rival submissions carefully. Though date of receipt on the original receipt is mentioned as 31-3-2008, but AO himself has mentioned the date of service as on 1-4-2008. Even if same is reckoned to be 1-4-2008, even then notice has to be treated as validly served. The Hon'ble Supreme Court has considered this issue in the case of R. K. Upadhyay vs. Shanbhai P. Latel [166 ITR 163]. In that case the notice was issued u/s.147[b] on 31-3-1970 but same was sent by registered post and received by the assessee on 3-4-1970. The Hon'ble court analysed the provisions of sections 148 and 149 and noted that the scheme of 1961 I.T.Act was different from 1922 I.T.Act and a clear distinction has been made between the "issue of notice and service of notice". It was further observed that once a notice was issued u/s.148 within the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which particular bill has been received late. Therefore, we are unable to accept the contentions of the Ld. Counsel of the assessee. Though, if a particular bill is received late and liability to pay that expenditure crystalises later on, such liability can be allowed in later year, but there have to be specific details of the same and reasons for receiving such late invoices. Since bills furnished before us themselves do not tally with the details therefore, we are of the opinion, that addition has been correctly confirmed by the ld. CIT(A) and accordingly, we confirm the order of the ld. CIT(A). 11. In the result, assessee's I.T. Appeal No.3829/M/10 for A.Y 2001- 02 is dismissed. 12. I.T.A.No.3875/M/10 [revenue's appeal] A.Y 2001-02: In this appeal Revenue has raised the following ground: "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the assessing officer to work out the deduction u/s.80HHC in accordance with the decision of ITAT Special Bench, Bombay in the case of Topman Exports which the department has not accepted." 13. After hearing both the parties, we find that the above issue is covered by the decision of the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eased by 90% of the sum referred to in Section 28(iiid). the 3rd proviso it was provided that in the case of an assessee having an export turnover exceeding ₹ 10 crores, the profits computed under Section 80HHC(3) shall be increased by 90% of the sum referred to in Section 28(iiid) subject to the two conditions set out therein. What constitutes application seeking DEPB credit would make no difference to the taxability of the entire amount received on transfer of the DEPB credit under Section 28(iiid). profits under Section 28(iiid) is the amount received on transfer of the DEPB credit and not the amount of credit which the assessee was entitled to under the DEPB scheme. In other words, the amount equivalent to the face value of DEPB as well as the amount received in excess of the DEPB would constitute profits of business under Section 28(iiid) and merely because, a part of such profits of business (face value) was offered to tax in the year in which the credit accrued to the assessee would not be a ground to hold that such profit was not covered under Section 28(iiid). Where the face value of the DEPB credit is offered to tax as business profits under Section 28(iiid) in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above decision, we allow the ground of appeal raised by the Revenue. 14. In the result, Revenue's appeal in I.T.A.No.3875/M/10 for A.Y 2001-02 is allowed. 15. I.T.A.No.7631/M/07 - [assessee's appeal] A.Y 04-05: In this appeal, the assessee has raised the following grounds: 1. The learned CIT(A) erred in confirming the action of Assessing Officer [AO] of disallowing ₹ 1,09,61,257 incurred on tooling and repairs treating it as capital in nature and not accepting the contention of the assessee that the impugned expenditure in fact was revenue in nature and had no enduring benefit. 2. The learned CIT(A) erred in confirming the AO's action of disallowing interest expenditure to the tune of ₹ 46,75,955 attributing the same to investment and hence treating it as non-business expenditure. The CIT(A) ought to have appreciated the fact that the entire investment was made from internal accruals and further that the investment was made with a cogent business rationale. 3. The learned CIT(A) further erred in confirming the AO's action of disallowing ₹ 30,42,000 which was for provision for commission/turnover discount treating the provision as contingent in nature. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of Section 80HHC read with Section 28. 11. The learned further erred in confirming the AO's action of not allowing carried forward of long term capital loss ₹ 4,58,50,060 stating that it was only a paper transaction, 16. Ground No.1: After hearing both the parties, we find that during the assessment proceedings AO noticed that assessee has claimed various expenditure under the head tooling, spares and repairs amounting to ₹ 1,32,26,962/-. The assessee was specifically requested to explain as to why the expenditure should not be treated as capital in nature. In response, it was stated that all expenditure was in the nature of revenue and there was no enduring benefit accruing to the assessee. However, no details or explanation in respect of each assets were furnished and, therefore, AO made an addition of ₹ 1,32,26,962/-. 17. On appeal, ld. CIT(A) observed that even before him no material was brought to his attention that expenditure of 13 items mentioned by the AO was either items of 100% depreciation or consumables in the process of business activity. Therefore, action of the AO for disallowing tooling expenses amounting to ₹ 1,09,61,257/- was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, in the absence of details, we confirm the addition made by the Ld. CIT(A). 21. Ground No.2: During assessment proceedings, AO noted that assessee had claimed interest amounting to ₹ 2,80,90,000/-. It was further found that assessee had invested a sum of ₹ 11.12 crores in the equity shares of Spicer India Ltd. In response to a query, it was mainly submitted that there was cogent business reasons for investment in Spicer India Ltd. and the investment was made in the earlier years. AO was not satisfied and he disallowed a proportionate amount of interest. 22. On appeal, the ld. CIT(A) confirmed the addition because, according to him, income if any, attributable to the shares was exempt u/s.14A. 23. Before us, Ld. Counsel of the assessee submitted that this issue may be remitted to the file of the AO in view of the decision of the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co.Ltd. vs. DCIT [328 ITR 81]. 24. On the other hand, Ld. DR strongly supported the order of the CIT(A). 25. After considering the rival submissions, we agree with the observations of the Ld. CIT(A) that income, if any, from the investment would be exempt lu/s.14A and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." Therefore, following the above decision, we set aside the order of the ld. CIT(A) and remit the matter to the file of the AO to recompute the disallowance of interest in the light of the decision of the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co.Ltd. vs. DCIT [supra]. 26. Ground No.3: After hearing both the parties, we find that during assessment proceedings it was noticed by the AO that assessee had made a claim under the head 'commission and trade discount' amounting to ₹ 30,42,000/-. This amount was debited as provision in the month of March, 2004 and, therefore, assessee was requested to explain why this claim should not be disallowed being of a contingent nature as liability has not been crystalised. In response, it was stated that though provision was made during the year, but credit notes were issued in the succeeding year. The AO did not find merit in this contention because, according to him, the liability on account of commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e year and that is why assessee has created a provision on the basis of the calculations. Details of credit notes issued to various parties had been furnished at pages 52 to 57 of the paper book and actual trade discount has been credited to parties by debiting the provision. Therefore, in our opinion, this provision was in respect of actual expenditure and is allowable. However, since AO has not verified the details with reference to credit notes as per details filed, we set aside the order of the ld. CIT(A) and remand the matter to the file of the AO with a direction to verify the amount of provision with actual credit notes as per details filed and then allow the claim. 31. Ground No.4: After hearing both the parties, we find that during assessment proceedings AO noticed that under the miscellaneous expenses a sum of ₹ 5,48,000/- has been debited as directors commission. In response to a query, it was stated that the claim had been made on the basis of the Board's resolution and commission has been paid to the two directors who was promoter of the company one of the directors was a technocrat and had given valuable services. The AO did not accept these submissions by obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xed. In response, it was stated as under: "These are normal business bad debts, written off every year based on the age of the outstanding amount. Any amount recovered subsequently, if any, is shown as recovery of bad debts." 37. On appeal, ld. CIT(A) confirmed the disallowance in view of the decision of the Hon'ble Gujarat High Court in the case of CIT vs. Girish Bhagwat Prasad [256 ITR 272]. 38. Before us, Ld. Counsel of the assessee submitted that after the amendment w.e.f. 1-4-1989 the only condition required for claiming bad debt is that same must have been written off and, therefore, CIT(A) was not correct in referring to the decision of the Hon'ble Gujarat High Court in the case of CIT vs. Girish Bhagwat Prasad [supra]. He also placed reliance on the decision of the Hon'ble Bombay High Court in the case of DIT (International Taxation) vs. Oman International Bank [313 ITR 128]. 39. On the other hand, Ld. DR pointed out that no details have been filed and the Hon'ble High Court in the above decision has also observed that atleast writing off of the bad debt has to be bona fide. 40. We have considered the rival submissions carefully and find that no detail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween the position, pre-amendment and post-amendment would be that the burden is no longer on the assessee and can be claimed in the year it is written off in the books of account as irrecoverable. The AO if he is to disallow the debt as a bad debt must arrive at a conclusion that the decision was not bona fide. The AO only in those circumstances and to that extent may interfere. All that the assessee must do is to be prima facie satisfied based on the information available that the debt is bad and that would be sufficient requirement of the amended provisions." The above clearly shows that bonafides of the assessee have to be verified before allowing the claim. It is not possible to claim every write off as bad debt. Since no details have been filed before us despite of fact that claim has been rejected for non filing of the details, we are constrained to confirm the order of the ld. CIT(A). 41. Ground No.6 was not pressed before us, therefore, same is dismissed as not pressed. 42. Grounds Nos.7, 8 & 9 are in respect of disallowance of 50% of staff welfare expenses, 15% of miscellaneous expenses and 10% of foreign travel expenses. These expenses were disallowed by the AO beca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his ground by the assessee was in respect of DEPB entitlements and he fairly conceded that the issue regarding DEPB is covered against the assessee by the decision of the Hon'ble Bombay High Court in the case of CIT vs. Kalpataru Colour & Chemical [328 ITR 461]. 48. On the other hand, Ld. DR supported the order of the CIT(A). 49. On the other, Ld. DR supported the order of the CIT(A). 50. After considering the rival submissions we find that the issue regarding DEPB has been decided by the Hon'ble Bombay High Court in the case of CIT vs. Kalpataru Colour & Chemical [supra] against the assessee and the relevant para has been already reproduced by us above while adjudicating assessee's appeal for A.Y 2001-02. Therefore, following the same, this issue is decided against the assessee. 51. Ground No.11: After hearing both the parties, we find that during assessment proceedings AO noticed that assessee had claimed carried forward of long term capital loss and sale of shares of Spicer India Ltd amounting to ₹ 4,58,50,060/-. AO requested the assessee to explain the details of the claim by furnishing evidence in support of cost of acquisition and sale price. The assessee w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors. Later on U.S. collaborators wanted to carry on with this business on their own. Since Spicer India Ltd. was continuously suffering loss, therefore, assessee also agreed to sell its shares at the cost price and therefore it was a actual loss. The loss has arisen because of indexation and hence same should have been allowed. 54. On the other hand, Ld. DR supported the order of the CIT(A). 55. We have considered the rival submissions carefully and find that AO as well as CIT(A) has discussed this issue summarily. The ld. CIT(A) has simply observed that no business expediency was there when these shares were sold. Therefore, in the interest of justice, we set aside the order of the ld. CIT(A) and remit this issue to the file of the AO with a direction to re-examine the issue. 56. In the result, assessee's appeal in I.T.A.No.7631/M/10 is partly allowed for statistical purposes. 57. I.T.A.No.7653/M/07 - [revenue's appeal] A.Y 04-05: In this appeal, Revenue has raised the following grounds of appeal: 1) On the facts and in the circumstances of the case and as per law, the Ld. CIT(A) erred in directing to treat the expenses incurred at ₹ 22,65,705/- on Stores & Spares as r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- because same is on account of spares and repairs which are of consumables nature. Therefore, we find nothing wrong in the order of the ld. CIT(A) and confirm the same. 63. Ground No.2: After hearing both the parties, we find that the AO had disallowed a sum of ₹ 5,48,000/- on account of commission to directors because assessee has not furnished the details regarding services provided by such directors. 64. On appeal, ld. CIT(A) allowed the commission amount to ₹ 2,74,000/- to Mr. S.K.Maheshwari who was a technocrat. 65. Both the parties have made idential submissions which were made during the assessee's appeal. 66. We have considered the rival submissions and have already extracted the relevant para of the CIT(A)'s order while adjudicating the assessee's appeal which is again reproduced hereunder: "I have gone through these submissions. I find that the Ld. AO has not examined this issue properly. 1% of the net profit as commission to non executive directors can not be said excessive payment as far as it is concerned with respect to Mr. S.K.Maheshwari who is a technocrat. But certainly such payment of commission to Mr. D.C.Anand who is not only the promoter dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... director has not been approved. 71. On appeal, ld. CIT(A) has adjudicated the issue vide para 2.3 which is as under: "2.3 I have considered the submissions of the Appellant. The Appellant vide letter dated 24-11-2009, admitted that there is no contractual obligation to give commissions to the directors. Therefore, it cannot be said that the Appellant company has incurred any liability to pay till the board decided to pass a resolution for giving commissions to the directors. In the present case board resolution is passed on 23-05-2005. This date falls after the end of the financial year. This commission is paid on the basis of net profit of the Appellant company. The Appellant is maintaining the books of account on mercantile basis and therefore, an expenses can be allowed as deduction only if the liability to pay arises during the year under consideration. In the present case, since there was no liability to pay commissions under any contract, liability to pay arises on the date of board resolution only. The board resolution is dated 23-05-2009, and therefore it cannot be said that any liability to pay commission arose in the current year. Therefore, deduction claimed by the App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Y 06-07: In this appeal the assessee has raised the following grounds: On the facts and in the circumstances of the case and in law- 1) The learned CIT[A] erred in confirming the disallowance of commission paid to Directors amounting to ₹ 1,30,000 treating the same as non business expenses. 2) The learned CIT[A]] erred in confirming the disallowance of the bad debts to the tune of Rs.,.5,64,271. 3) The learned CIT[A] erred in confirming the disallowance of advance written off to the tune of ₹ 13,10,560. 4) The learned CIT[A] erred in confirming the adhoc disallowance at 20% of the total expenditure of ₹ 87,94,825 of staff welfare expenses treating it as non business expenditure without going into the true nature and purpose of the expenditure. 5) The learned CIT[A] erred in confirming an adhoc disallowance at 10% of the total expenditure of ₹ 1,48,02,880 of miscellaneous expenses treating it as non business expenditure without going into the true nature and purpose of the expenditure. 6) The learned CIT[A] erred in confirming the adhoc disallowance of ₹ 1,89,960 being 10% of foreign travel expenses alleging that specific details were not submitt ..... 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