TMI Blog2011 (9) TMI 1026X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, none of the bills placed before us matched with the above items. The bill of NIIT of page 38 is for ₹ 1,85,250/-. Bills on pages 39 to 42 of the paper book are from Hughes Escort Comm Ltd. for ₹ 16,667/-, ₹ 41,667/-, 19355/- and 1,03,871/-. These bills do not match with the details provided. Moreover, it has not been made clear 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80HHC so as to exclude 90% of the profits received on transfer of DEPB from the profits of business for the purposes of Section 80HHC and inserted the second and third provisos to Section 80HHC(3). The second proviso it was provided that in the case of an assessee having an export turnover not exceeding ₹ 10 crores, the profits computed under Section 80HHC(3) shall be increased 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meaning of clause (iiic) and (c) When Section 28(iiid) specifically deals with profits realized on the transfer of the DEPB credit, it would be impermissible as a matter of first principle to bifurcate the face value of the DEPB and the amount received in excess of the face value of the DEPB. the entirety of the sale consideration would fall within the purview of Section 28(iiid). Following the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80HHC. The miscellaneous income included income which was earned in regular course of business and hence are not required to be deduction @ 90% u/s.80HHC(3). iii) The learned CIT(A) has erred in not including 90% export incentive to the tune of ₹ 1,15,13,361 while calculating the profit for the purpose of claim u/s.80HHC. Without prejudice to the above, the CIT(A) has directed to recompute the deduction u/s.80HHC in accordance with the amended provisions 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. How ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... G S CUTTER 1.15 G S CUTTER 1.40 G S CUTTER 2.00 G S CUTTER 2.5 BRAZED G S CUTTER 0.70 G S CUTTER 0.90 G S CUTTER 1.15 TRIAL CUTTER 1.15X32 MARKING PUNCH PRADMA TAPER FILLERGAUGE WITH DIAMOND WHEEL D12V9 INSERT SPAN 1203 EDL Total Rs.1,09,61,257 The above clearly shows that certain heavy items like cutters have been claimed as tooling expenses. But bills for the same have not been filed before the AO or CIT(A) or even before us. Therefore, in the absence of details, it is very difficult to accept the contentions of the Ld. Counsel of the assessee. For example, we do not know how many cutters have been purchased through such bills which range from ₹ 7,56,310/- to ₹ 22,59,936/-. 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 Spic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of sub-section.(1) of section 14A. For that purpose, the Assessing Officer is duty bound to determine the expenditure which has been incurred in relation to income which does not form part of the total income 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. 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. Therefore, following the above decision, we set aside the order of the ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s well as commission is given to the various dealers on the basis of various schemes of the company as well as turn over of the dealer. Such commission and trade discount was being allowed on monthly or quarterly basis to various dealers. Therefore, at the end of the year it is not possible to issue all the credit notes and accordingly a provision is made on the basis of the calculation of the turnover etc. Therefore, this liability cannot be said to be of contingent nature. He submitted that details of credit notes were furnished before the AO [copy of which is available at pages 52 to 57 of the paper book]. 29. On the other hand, Ld. DR supported the order of the CIT(A). 30. After considering the rival submissions, we find force in the submissions of the Ld. Counsel of the assessee. It is not generally possible to issue all the credit notes pertaining to the last quarter of the year at the end of the 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inted out that commission was paid to non executive director. However, he admitted that no agreement in terms of the Board s resolution had been executed by the assessee. 34. On the other hand, Ld. DR supported the order of the CIT(A). 35. After considering the rival submissions, we find that ld. CIT(A) has correctly adjudicated the issue by allowing the commission in the case of Mr. S.K.Maheshwari who is a technocrat. Since the company has not executed any agreement with Mr. D.C.Anand in terms of the Board s resolution, the amount has been correctly disallowed. Therefore, we decline to interfere with the order of the ld. CIT(A) and reject this ground. 36. Ground No.5: After hearing both the parties, we find that during assessment proceedings AO noticed that assessee has made a claim of ₹ 5,73,000/- as bad debts. The assessee was requested to explain the nature thereof and the year in which it was originally taxed. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny bad debt and not any debt . The consequences of the amendment are mainly three : (i) The assessee cannot arbitrarily, irrationally or mala fide treat a good debt as bad, write it off in his accounts. (ii) Where the assessee has acted bona fide and reasonable, the AO cannot substitute his own subjective judgment, but must accept the assessee s decision, as to the quality of the debt. (iii) The assessee is not obliged to write off and claim the debt in the very year in which it becomes bad. He can write it off and claim it in a subsequent year in which the debt continues to remain bad. 11. All this would indicate that when the assessee treats the debt as a bad debt in his books the decision has to be a business or commercial decision and not whimsical or fanciful. The decision must be based on material that the debt is not recoverable. The decision must be bona fide. The difference between 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 con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of deletion of disallowance of ₹ 3,54,954/- on foreign travel expenses at 10% of the claim. The AO made the disallowance by holding that specific information regarding person, purpose and place of visit has not been furnished. The learned CIT(A) on appeal deleted the addition. After hearing both the sides, we find that the issue was allowed by the Tribunal in the assessee s own case for the assessment year 2001-02 in I.T.A.No.335/Mum/2005 vide order dated 17-3-2008. Respectfully following the same, since the facts and reasons for disallowance are same, we dismiss the ground raised by the revenue. Following the above order, we decide the above issue in favour of the assessee. 47. Ground No.10: The Ld. Counsel of the assessee pointed out that there were various issues involved in respect of deduction u/s.80HHC and some of them have been allowed in favour of the assessee by the CIT(A). Therefore, the only grievance raised through this 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 Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rough the submissions of Ld. AR in the form of note on sale of 1,11,20,000 equity shares of Spicer India Ltd. contained in their letter dated 29-11-2006 submitted before the Ld. AO during the assessment proceedings. It is seen that the shares were sold in March 2004. There is no dispute that Spicer India Ltd. is not a listed company. However, I find that no business expediency has been brought out as to why it was necessary to sell these shares at huge loss just two days before the close of the financial year. Therefore, findings of the Ld. AO appear to be judicious in the facts and circumstances of the instant case and there appears no need to interfere with the action of the Ld. AO on this issue. Accordingly, the action of the Ld. AO in disallowing Long Term Capital Loss to the tune of ₹ 4,58,50,060/- is upheld and the appeal fails on this ground. 53. Before us, Ld. Counsel of the assessee submitted that Spicer India Ltd. was started along with the US collaborators. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital expenditure, it was stated that the expenditure was in the nature of revenue as no enduring benefit has been obtained. The AO disallowed a total sum of ₹ 1,32,26,962/-. 59. On appeal, the ld. CIT(A) confirmed the disallowance on account of tooling expenses amounting to ₹ 1,09,61,257/-. However, as far as sum of ₹ 22,65,705/- is concerned, same was allowed as this expenditure was in respect of spares and stores which, according to the ld. CIT(A), were in the nature of consumables or had become obsolete. 60. Before us, Ld. DR strongly supported the order of the AO. 61. On the other hand, Ld. Counsel of the assessee reiterated the submissions which were made by him while arguing the assessee s appeal. 62. We have considered the rival submissions. While adjudicating the assessee s appeal in this respect, we have already confirmed the addition of ₹ 1,09.61.257/- which was made for tooling expenses. However, we find that ld. CIT(A) has correctly allowed the claim of ₹ 22,65,705/- 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 confir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of disallowing the bad debts to the tune of ₹ 5,30,184. 3. The learned CIT(A) further erred in confirming the AO s action of disallowing advance written off to the tune of ₹ 13,93,559. 4. The learned CIT(A) further erred in confirming the at 20% of srs.80,44,494 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) further erred in confirming the disallowance at 10% of the total expenditure of ₹ 1,64,05,528 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) further erred in confirming the disallowance of an adhoc amount of ₹ 1,43,816 being 10% of foreign travel expenses alleging that specific details were not submitted. 70. Ground No.1: After hearing both the parties, we find that in this year also AO has disallowed commission paid to the director amounting to ₹ 9,50,000/- because nature of services provided by the director has not been approved. 71. On appeal, ld. CIT(A) has adjudicated the issue vide para 2.3 which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay High Court has observed that mere writing off bad debt is not enough and assessee had to show that its decision to write off the bad debt was bona fide. 76. Both the parties made similar submissions. 77. After considering the rival submissions, we find that this issue has been adjudicate by us vide para-40 wherein claim for bad debt was rejected in the absence of details. Since in this year also no details have been filed, therefore, we reject the claim of the assessee. 78. Ground No.3 was not pressed before us, therefore, same is dismissed as not pressed. 79. Grounds Nos.4,5, 6: In these grounds additions of 20% of staff welfare expenses, 10% of miscellaneous expenses and 10% of foreign travel expenses have been challenged 80. Both the parties have made the similar submissions as in A.Y2004-05 81. After considering the rival submissions we find that these issues have been decided in favour of the assessee vide para-46 above in view of the order of Tribunal in A.Y 2003-04. Therefore, these issues are decided in favour of the assessee. 82. I.T.NO. 4180/M/10[assessee s appeal] A.Y 06-07: In this appeal the assessee has raised the following grounds: ..... X X X X Extracts X X X X X X X X Extracts X X X X
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