TMI Blog2016 (4) TMI 215X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, the liability to pay the sum was a trading liability and was allowable as a deduction. - Decided in favour of assessee Disallowance u/s 14A - quantification of disallowance - Held that:- We find that in the case of Godrej Agrovet (2014 (8) TMI 457 - BOMBAY HIGH COURT ), the Hon’ble Court had held that percent of exempt income would constitute a reasonable estimate for making disallowance in the years earlier to 2008- 09. Following the same, we direct the AO to restrict the disallowance to 2% of the exempt income.- Decided in favour of assessee in part Determination of income as per the provisions of section 115 JB - Held that:- We find that the AO not given any reasons for adding certain items while determining the income u/s. 115JB of the Act, that the FAA has rejected the claim of the assesse. He had not adjudicated the issue of accrued interest calculated on the interest bearing deposits to time sharing-members for the purposes of calculating the book profit. The assessee had made submissions in that regard. Even if it was a new claim, the FAA was supposed to decide the issue for computing book profit for the year under consideration. Though the AO cannot accept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iday period every year for members were eligible to exchange their holiday accommodation with other person in other hotels or resorts worldwide through a centralised agency, that it had accepted deposits from the members that were refundable on the expiry of 6th year or 12th year (25%) , that balance 75% of the deposit was to be refunded without any interest on expiry of the creditor, that at the option to claim 25% of the deposit rested with the members, that Himco adopted the accounting policy of not providing interest on the 25% portion of the deposit every year but in the year of payment of such interest at the time of refunding the deposit as and when any claim was made by a member, that it disclose the amount of such liability for the year and cumulative liability of sub-s interest in the notes on accounts by way of contingent liability, that the statutory auditors had qualified their report to the shareholders on the annual accounts every year to the fact that Himco had not provided for the interest liability has the same was accounted for on payment. After considering the submission of the assessee, the AO held that because of deduction of tax at source the assessee was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account (being the general reserve)was an existing liability though the amount thereof was quantified on payment, that in subsequent years provision made in the books of accounts for the liability towards interest payable was being allowed by the AO in the assessments for the AY. 2007-08 onwards, that it had paid TDS of ₹ 11. 01 lakhs on the entire amount of expenditure and had complied with the provisions of section 194A of the Act. After considering the submission of the assessee and the assessment order, the FAA held that assessee under the scheme of amalgamation took over the assets and liabilities of Himco , that the liabilities included the liability in respect of refundable deposits which carried interest in terms of timeshare agreement, that it was required to quantify and adjust the difference in accounting policies on the date of amalgamation by debiting the said difference to the amalgamation reserve account, that it had made a provision and paid the interest after rejecting the relevant tedious in accordance with the provisions of Sec. 40 (a)(ai) of the Act during the year under consideration, that the assessee had only created provision but no payment had bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deposit of 30/06/2005 amounting to ₹ 1. 07 crores and existed the same based amalgamation this account in the books of company, that the side liability of interest accruing on the refundable portion of the deposit from 1. 07. 2005 onwards had been entered in the accounts of the assessee in the profit and loss account, that the assessee had taken over all the assets and liabilities of Himco, that included liability in respect of refundable deposits. Departmental representative argued that the liability was contingent, that it was only a provision, that same was not an allowable expenditure as per the provisions of the Act. 2. 3. We have heard the rival submissions and perused the material before us. We find that as per the orders of the Hon ble Bombay High Court, Himco had amalgamated with the assessee, that it had taken over all the liabilities and assets of amalgamated company, that both the companies were following different system of accounting, that following the directions of the Hon ble High Court and the mandate of the Act and the Companies Act the assessee had made provision for liability towards interest accrued on 25% of refundable deposits of 30/06/2005, that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alia, an amount of ₹ 14, 250 payable to the sole selling agents by way of interest. The assessee claimed the amount as its trading liability which was disallowed by the AO on the ground that the liability related to the erstwhile firm. The FAA affirmed the order of the AO. On further appeal, the Tribunal held that the agreement of 1/04/1969, was comprehensive enough to saddle the assessee with the liability of the erstwhile firm qua its sole selling agents and allowed the assessee's appeal. On a reference the Hon ble Allahabad High Court held as under: . . as the assessee-firm had taken over the entire assets and liabilities of the erstwhile firm and as the suit had already been filed before the agreement of April 1, 1969, was reached the agreement included the liability of the erstwhile firm in regard to the payment of interest payable to the sole selling agents, for, the parties must be assumed to be in full knowledge of the affairs of the erstwhile firm. Therefore, the liability to pay the sum of ₹ 14, 250 under the court decree was a trading liability and was allowable as a deduction. Considering the above discussion, we are of the opinion that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance to 2% of the exempt income. Ground No. 2, is allowed in favour of the assessee, in part. 4. Last ground of appeal is about determination of income as per the provisions of section 115 JB of the Act. While calculating the book profit the AO made certain addition. During the course of appellate proceedings, before the FAA, the assessee submitted that the AO had proceeded with the computation of book profit u/s. 115JB of the Act by taking net profit of ₹ 15. 57 crores, that he had overlooked various clauses of scheme of amalgamation, that AO did not consider the published accounts and notes on accounts, that for computing the book profit all relevant facts were placed before him, that the assessee was entitled to deduction of ₹ 1. 07crores for the accrued interest calculated on the interest bearing deposits to the time sharing members. After considering the submission of the assessee and the assessment order, he held that while computing the income as per the provisions of section 115JB the AO had not given any reasons for making additions, that there was no merit in the argument of the assessee that the provisions in respect of Income tax/fringe benefi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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