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2016 (4) TMI 823 - ITAT MUMBAI

2016 (4) TMI 823 - ITAT MUMBAI - TMI - Adhoc disallowance made u/s. 14A of the Act for computing book profits u/s. 115JB of the Act - Held that:- As relying on GODREJ AND BOYCE MFG. CO. LTD. Versus DEPUTY COMMISSIONER OF INCOME-TAX AND ANOTHER [2010 (8) TMI 77 - BOMBAY HIGH COURT] issue is Decided against assessee

Disallowance u/s 14A - Held that:- Assessee had not used borrowed funds to earn exempt income, that the FAA discussed the issue at length and held that there was no evidence .....

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- difference between the sales tax liability and the net value paid under a scheme of Govt. of Maharashtra - Held that:- Deferred sales tax liability being the difference between the payment of net present value against the future liability credited by the assessee under the capital reserve account in its books of account was a capital receipt and could not be termed as remission/cessation of liability and, consequently, no benefit would arise to the assessee in terms of section 41(1)(a) - Deci .....

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ent years(AY. s. ). As most of the issues involved in these appeals are common, so, we are adjudicating all the appeals by passing a single order. The details of dates of filing of return/assessed income etc. can be summarised as under : A. Y. ROI filed on Returned Income(Rs. ) Assessment dt. Assessed Income(Rs. ) Dt. of orders of CIT (A) 2005-06 27. 10. 2005 Loss 62, 04, 05, 722/- 17. 12. 2007 (-)15, 8199, 522/- 21. 03. 2011 2006-07 25. 10. 2006 Nil 08. 12. 2008 NIL 22. 03. 2011 2007-08 16. 10. .....

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ue was decided by the Tribunal in the earlier years(ITA Nos. 4538-39/Mum/11, AY. s 2003-04 and 2004-05). We find that except for the amount involved with regard to depreciation, the assessee had raised the identical grounds for two earlier AY. s. and the Tribunal had decide the issue as under :- 17. We have considered the rival contentions and have also gone through the record. We have carefully gone through the relevant provisions i. e. explanation 2A and 2B to section 43(6) and have also consi .....

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. e. 01. 04. 2000 vide which the words the value of the assets as appearing in the books of account were substituted with the words written down value of the transferred assets as appearing in the books of account . Now we have to see whether any change was brought out with the amendment made vide Finance Act, 2000 into the relevant provisions? We find that at the time of insertion of the relevant provisions, the value of the assets of the demerged company was to be taken as its written down val .....

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ke the contention of the assessee as correct, then in that event there would not have been any impact or change in the interpretation of the relevant provisions even after the amendment made by Finance Act, 2000. If, as contended by the Ld. Counsel for the assessee, the intention of the legislature has been that the written down value as appearing in the books of account maintained under the Companies Act be adopted, then it will not be understandable as to what was the purpose of immediate amen .....

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ted, then, the words appearing before amendment and after amendment made vide Finance Act 2000, will give the same meaning, resulting to inference that the legislature has not made any amendment in the said section and the said amendment will become meaningless and rendered redundant. However, in our view, the Parliament has not made a futile exercise in amending the relevant provisions vide Finance Act, 2000. Hence, we agree with the view taken by the Ld. AO after referring to the memorandum ex .....

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e words as appearing in the books of account have neither taken away nor affected any rights of the assessee which were accrued to him before the said amendment. The amendment made vide Finance Act, 2003 has just removed the ambiguity. It has neither taken away any right of any assessee nor has given any new right to the Revenue. 18. We have gone through the order of the Tribunal in the case of Godrej Industries Ltd. (supra) and we agree with the view taken by the Tribunal in the said case that .....

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cordingly constitute the written down value of the block of assets of the resulting company. 19. Now coming to some important decisions relied upon by the Ld. counsel for the assessee as mentioned herein below: 1. CIT vs. Triveni Engineering & Industries Ltd. and Others (DOD:05. 08. 2010) (Delhi - HC); 2. CIT vs. Kerala Electric Lamp Workers Ltd. - 261 ITR 721 (Kerla - HC); 3. SEDCO Forex International Drill INC and Others - 279 ITR 310 (SC) ; 4. DCIT vs. Core Health Care Ltd. - 298 ITR 194 .....

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be taken prospectively. However, the above decisions cannot be applied to the facts and circumstances of the present case. In the present case, as observed above by us, the omission of the words as appearing in the books of account neither have in any way affected any substantive right already vested in the assessee nor has taken away any such right which was accruing to the assessee before such omission. In fact, the curative amendment was made by the Parliament vide Finance Act, 2000 and only .....

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erein cannot be applied to the facts and circumstances of the case in hand. These grounds are accordingly decided against the assessee. Respectfully following the above, we decide the effective Ground of appeal (GOA, 1-3)against the assessee. 4. The assessee had raised following additional grounds for the year under consideration: Both the lower authorities erred in holding that adhoc disallowance made u/s. 14A of the Act was also required to be added back for computing book profits u/s. 115JB o .....

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decided against the assessee. 6. Vide its letter, dated 22. 02. 2016, the assessee had filed further additional grounds of appeal for with a request to admit the same. In its letter the assessee had stated that during the year under consideration the assessee had earned dividend income, that it was claimed exempt u/s. 10(34) of the act, that it was contended that assessee had not incurred an expense toward income of dividend income, that no amount was required to be disallowed section 14A of the .....

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l approximately 95% of the investments made by the assessee were in its group companies/subsidiaries. Referring to the order of the Tribunal in the case of the Garware Wall ropes Ltd (65SOT86), the assessee stated that above decision was rendered after the filing of the appeal, that the issue involved was legal one, that there was reasonable and sufficient cause for not raising the issue earlier. During the course of hearing before us, the AR made the same submission that are part of the letter .....

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file of the FAA for fresh adjudication of the issue. He is directed to afford a reasonable opportunity of hearing to the assessee before deciding the matter. Both the additional grounds of appeal, raised by the assessee vide its letter dated 22/02/2016, are decided in its favour, in opart. ITA/4541&4542/Mum/2011-AY. s. 2006-07& 2007-08: 8. The effective grounds of appeal for both the AY. s. are about computation of depreciation. Following our order for the earlier year Gs. OA 1-3 are dec .....

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owance in respect of managerial/administrative expenses to 1% of dividend income and deleting the disallowance of interest expenditure. During the assessmentt proceedings, the AO found that the assessee had earned dividend income of ₹ 4833. 44 lakhs during the year and had claimed it as exempt. He asked the assessee as to why expenses attributable to earning of dividend income should not be disallowed. After considering the submission of the assessee, the AO made a disallowance of ₹ .....

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he assessee , the FAA held that while completing the assessments for the AY. s 07-08 and 2008-09 the AO himself had stated that assessee had not used borrowed funds for making investment and that the assessee had made investment from his own funds, that the Tribunal while deciding the appeals for the AY. s 1998-99 to 2001-02 had held that Department could not establish nexus between the borrowing and the investment in the dividend earning shares, that the Tribunal had indirectly held that no inv .....

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ence that investments were made out of borrowed funds. Finally he deleted the addition of 17, 42, 14, 000/-. With regard to disallowance made under the head managerial/administrative expenses the FAA held that in the case of Group Companies Godrej Agrovet Ltd. and Godrej Industries Ltd. the Tribunal had restricted the expense to the extent of 2-5% of the dividend income. Finally, he held that it would be sufficient and justified to attribute expenses equivalent to 1% of the dividend received as .....

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that the assessee had not used its own funds for earning exempt income. In these circumstances, we are of the opinion that there is no legal infirmity in the order passed by the FAA as far as interest expenditure is concerned. We further find that FAA had restricted the administrative/managerial disallowance@ 1%. The AO had not given any reason for making the disallowance. Therefoere, confirming the order of the FAA, we decide the effective GOA against the AO. ITA/4756/Mum/2011, AY. 2006-07: 14. .....

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7/Mum/2011 dtd. 26. 06. 2013. We would like to reproduce the relevant portion of the said order and same reads as under :- 2. The sum and substance of the grievance of the revenue relates to the deletion of loan under the sales tax deferral scheme u/s. 41(1) of the Act and also u/s. 28(i) and 28(iv) of the Act. During the year under consideration the assessee company has availed of the benefits of deferral of sales tax offered by the Government of Maharashtra as incentive for rapid industrializa .....

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pt not liable to tax. During the course of scrutiny assessment proceedings, the assessee was asked to explain as to why the gain on remission of sales tax liability should not be considered as income as per the provisions of section 41(1) of the Act. The assessee simply stated that it is not covered under the provisions of section 41(1) of the Act. The submission of the assessee did not find any favour from the Assessing Officer, who was of the firm belief that the assessee has derived benefit i .....

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of ITAT, Mumbai Benches, in the case of Sulzer India Ltd. v. JCIT 47 DTR 329 dated 10. 11. 2010. The CIT(A) followed the decision of the Special Bench and deleted the additions made by the Assessing Officer. Aggrieved by this finding of the CIT(A), the revenue is before us. 3. The learned DR strongly supported the findings of the Assessing Officer and contended that the facts of the case are squarely covered by the provisions of section 41(1) of the Act. It is the say of the counsel that what h .....

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ences brought on record. It is not in dispute that the assessee has taken benefit of the scheme offered by the Government of Maharashtra. As provided in Circular No. 496 dated 25. 09. 1987 and Circular No. 674 dated 29. 12. 1993 issued by the CBDT, although the sales tax collected from the customers is a trading receipt, on account of deferral scheme, the same is deemed to have been paid. As a result, it amounts to discharge of the liability to pay sales tax. Once the liability is discharged the .....

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of 2002 & Rule 31D of BST Rules 1959 notified vide Govt. Notification No. STR-12. 02/CR-002/Taxation-1, dated 16. 11. 2002, where under the eligible undertaking was permitted to prepay the loan amount. Under the said scheme, the prepayment was allowed at the NPV of the loan repayable at the end of the loan period. The assessee availed the benefits of this scheme and got a remission in the aggregate loan liability amounting to ₹ 9, 92, 92, 718/- It is further seen that on 12. 12. 2002 .....

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07/- Surplus accrued on the above ₹ 9, 92, 92, 718/- This surplus has been treated as capital receipt, which has been taxed by the Assessing Officer u/s 41(1) of the Act. Considering these facts, we find force in the contention of the counsel that the issues are squarely covered by the decision of the Special Bench of the Tribunal in the case of Sulzer India Ltd. (supra). The Tribunal has held as under: The assessee was liable to pay sales tax amounts collected from 1-11-1989 to 31-10- 199 .....

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of liability, because the State Government had not waived of any of the liability as given in the illustrations. Had the State Government accepted lesser amount after twelve years or reduced such instalments, then it could have been a case of remission or cessation. However, in the instant case the State Government had chosen to receive the money immediately which was receivable from 1-5-2003 to 1- 5-2008. The amount of ₹ 337. 13 lakhs was actually paid to SICOM on 30-10-2002. Thus, it did .....

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