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2016 (4) TMI 215 - ITAT MUMBAI

2016 (4) TMI 215 - ITAT MUMBAI - TMI - Disallowance of interest on timeshare deposits - Held that:- 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 liab .....

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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 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 cons .....

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ed 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 a new claim without a revised return of income. But, the appellate authorities are not bound by such restrictions. The FAA should have decided .....

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answer to question no. 103. It has been clarified by the Board that FBT was an allow able deduction in the computation of books profit u/s. 115JB of the Act. Considering the above facts, we are reversing the order of the FAA. - Decided in favour of assessee in part - I. T. A. /4120/Mum/2012 - Dated:- 31-3-2016 - Sh. Rajendra, Accountant Member and Amit Shukla, Judicial Member For the Petitioner : Shri M. Murli For the Respondent : Assessee by: Shri R. C. Jain ORDER Per Rajendra, AM Challenging t .....

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duction of ₹ 1, 07, 98, 065/-under the head interest on timeshare up to 30/06/2005. He directed the assessee to furnish details of the expenditure and to show cause and explain as to why instead of debiting in the profit and loss account it had been claimed separately in the competition of income is also to show cause and explain as to why the same should not be disallowed. In response to the notice the assessee filed a letter and stated that Himco was engaged in the business of time-shari .....

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r 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 cumulativ .....

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d accrued in the relevant year, that the assessee itself had stated that liability of ₹ 1. 07 crore was that of erstwhile transferred company, that the assessee had merely made the provision for the same without Actually making the payment of the interest, that the liability of interest expenditure could not be said to have been accrue in the case of the assessee. Finally, the AO disallowed the amount in question holding it on business expenditure. 2. 1. Aggrieved by the order of the AO, t .....

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ble scheme Himco had accepted the deposits from timeshare member for providing hotel accommodation for specified period every year for 25 years and at the end of the agreed period the deposit received from such a member was refundable along with interest, that under the scheme of amalgamation the said accrued interest liability was calculated on the refundable deposits taken over by the assessee, that liability for refundable deposits and accrued interest was duly shown as liability in the balan .....

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r in the books of accounts for the year ended on 31/3/2006, that as per the accounting method adopted by the assessee the amount of accrued interest was reduced from the amalgamation reserve account, that the said account was approved by the Hon ble Bombay High Court, that the amount in question debited to amalgamation reserve 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 a .....

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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 provisi .....

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ties of Himco , that Himco was engaged in the business of providing time-share holiday services under refundable/non-refundable schemes, that under the first the scheme Himco had accepted deposits from timeshare members for providing portal accommodation for a specified period and at the end of the agreed period the deposit was to be refunded back to the members, that the liabilities taken over under the scheme of amalgamation included the liability in respect of refundable deposits, that in ter .....

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o consideration while merging the accounts of Himco with the accounts of the assessee in the scheme of amalgamation. He referred to paragraph 34 of accounting standard 14 and stated that there was a conflict between the accounting policy followed by the transfer company and the transferee company it was necessary for the assessee to regularise the accounting policies followed by Himco to give full effect to the Bombay High Court order approving the scheme of amalgamation, that para 9. 4 of the s .....

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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 .....

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assessee had made provision for liability towards interest accrued on 25% of refundable deposits of 30/06/2005, that the assessee had given proper treatment to the amount in question in its books of accounts. In our opinion, if a liability can be ascertained on a scientific basis then it cannot be termed a contingent liability. The Hon ble Apex court in the case of Rotork Controls India P. Ltd. (314ITR62) has laid down the following principles with regard to the business liabilities: A provisio .....

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consideration as a result of a past event and outflow of resources was required to settle the obligation. The assessee had followed the provisions of AS-14 and had adopted a policy which was approved by the Hon ble High Court. We have also taken cognizance of the fact that the amalgamation scheme was approved by the Hon ble Bombay High Court and assessee had Acted in pursuance of the order of the court. Here we would like to refer to the case of Hind Motor Cycle Ltd. (134ITR348). Facts of the c .....

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of the security deposit as also their commission and interest. Meanwhile, by an agreement dated 1/01/1969, the assets and liabilities of the business, which were carried on by the erstwhile firm, were taken over by the assessee-firm at their book value as on 31/03/1969. Before the assessee-firm took over the assets and liabilities of the erstwhile firm, the sole selling agents had filed their suit claiming various amounts against the erstwhile firm and the suit was decreed on 18/12/1969, for, i .....

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;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. There .....

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that it had claimed exemption for the said income. He directed the assessee to furnish complete details of investment on which it had derived the exempt income and to furnish the competition of disallowance under section 14 A in accordance with rule 8D of the income tax rules, 1962. The assessee vide its letter dated 1812 2008 furnished the details of dividend income and competition of disallowance under rule 8D. He worked the disallowance under section 14 A of the Act and made a disallowance o .....

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held that Rule 8D had no application to the facts of the case, that the assessee did not make any apportionment on its own, that the AO had to apply the apportionment of the expenditure as per the provisions of Section 14A of the Act. Finally, he restricted the disallowance to ₹ 1. 00 lakhs. 3. 2. Before us, the AR stated that provisions of Rule 8D were not applicable for the year under consideration, that assessee had earned exempt income of ₹ 21, 000/- (approx). He relied upon the .....

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ance in the years earlier to 2008- 09. Following the same, we direct the AO to restrict the 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 .....

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e 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 benefit tax could not be added while computing the book profits, that the additions made by the AO squarely fell within the provisions of section 115JB. Finally, he upheld the order of the AO. 4. 1. Before us, the AR made .....

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