TMI Blog2016 (4) TMI 823X X X X Extracts X X X X X X X X Extracts X X X X ..... me 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) - Decided against the AO. - ITA/4540/Mum/2011, ITA/4755/Mum/2011, ITA/4541/Mum/2011,ITA/4756/Mum/2011, ITA/4542/Mum/2011, ITA/4757/Mum/2011 - - - Dated:- 13-4-2016 - Sh. Joginder Singh, Judicial Member And Rajendra, Accountant Member For the Petitioner : Ms. Amrita Misra (DR) For the Respondent : Shri Nitesh Josh Ms. Sonalee Godbole (AR) ORDER Per Rajendra A. M. Challenging the order of Cs. IT(A) the assessee and the Assessing Officers (AO. s) have filed cross-appeals for the above mentioned assessment 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 : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee 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 value under clause 2A, whereas under clause 2B, the corresponding written down value of the assets of the resulting company was mentioned as the value of assets as appearing in the books of account . However, immediately, before these provisions come into operation, an amendment was brought out in explanation 2B and the relevant words were substituted with written down value of the transferred assets . However, the other relevant words as appearing in the books of account were not omitted. If we take 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmity in the findings of the lower authorities that only the written down value of the transferred assets of the demerged company as per the accounts maintained under the Income Tax Act shall accordingly 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 (SC); 5. CIT vs. Sree Senha Valli Textiles P. Ltd. 259 ITR 77 (Mad. HC); 6. CIT vs. Vatika Township Pvt. Ltd. and others Civil appeal No. 8750 of 2014 decided on September 5, 2014. 20. We have perused the aforesaid decisions and found that the Hon ble High Courts and Hon ble Supreme Court in the above said decisions are unanimous to hold that where a substantive right has been affected by the amendment, the amendment, if not so expressively provided un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 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 Act, that the AO had disallowed an amount of ₹ 18. 03 crores u/s. 14A, that the FAA had reduced the disallowance to ₹ 48. 33 lakhs, that the assessee had taken a ground before the FAA in respect of non-applicability of provision of section 14 A to dividend subjected to tax under section 115-O/115-R of the Act, that the FAA did not adjudicate the said ground, that while filing the appeal before the Tribunal above ground was in inadvertently not taken, that during the year under appeal 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 of the assessee dated 22/02/2016. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... detailed submission. After considering the assessment order and the submission of the 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 investments were made out of borrowings, that no expenses could be attributed to earning of dividend income, that prior to AY 98-99 the AO had not made such disallowance in any of the years, that in the AY. s 03-04 and 04-05 the AO had made disallowance of ₹ 46. 95 lakhs and 36. 29 lakhs respectively being the interest expenditure and managerial/administrative expenses, that in those years the AO had made estimation of such expenses at the rate of 1% of dividend income, that there was no evidence that investments were made out of borrowed funds. Finally he deleted the addition of 17, 42, 14, 000/-. With re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the developing regions of the State of Maharashtra and prepaid certain sales tax loans in respect of its plant at Shirwal near Pune, in accordance with the scheme providing for such prepayment and considered the gain on such prepayment as capital receipt. The assessee has credited an amount of ₹ 9, 92, 92, 718/- on account of gain on remission of sales tax deferral loans. However, while computing the business income, the assessee has reduced such gain with a remark of capital receipt 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 in respect of payment of sales tax liability, which squarely covered the meaning of trading liability and, hence, the gain of such liability is nothing but deemed income of the assessee as per the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2/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 the Government of Maharashtra announced a scheme of Premature Repayment of the amount of deferred tax by the eligible units at NPV . The industries who had availed the incentives of the sales tax scheme were permitted to prematurely repay the deferred sales tax liability by arriving at NPV by applying a specific discount. The assessee availed the benefit of the scheme announced on 12. 12. 2002 as under: Sales tax liability ₹ 18, 79, 58, 925/- Less : Premature repayment ₹ 8, 86, 66, 207/- 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 issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9] The appeal filed by the revenue is accordingly dismissed. 5. Before parting, the DR has relied upon the decision of Jurisdictional High Court of Bombay in the case of Hindustan Foods Ltd 328 ITR 392. However we find that in that case the assessee company unilaterally transferred the unclaimed amount of the debenture redemptions to its general reserve without complying with the mandatory conditions of sec. 205C of the Company Act, 1956 wherein it is provided that such unclaimed amount has to be transferred to Investor Education and Protection Fund . Thus, the facts are clearly distinguishable and the reliance on the aforesaid judgment is misplaced. Respectfully following the above order gr. No. 2 is decided against the AO. ITA/4757/Mum/2011, AY. 2007-08: 16. The only ground raised by the AO is about restricting the disallowance of managerial /adminstrative expenses to 1% of dividend income and deleting the disallowance of interest expenditure. Following our orders for the earlier years we decide the effective GOA against the AO for the year under consideration. As a result, appeals filed by the assessee are partly allowed and the appeals of the AO. s. ..... 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