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M/s Lee And Murihead Pvt. Ltd., Addl. Commissioner of Income Tax Versus Addl. Commissioner of Income Tax, M/s Lee And Murihead Pvt. Ltd.

2016 (4) TMI 960 - ITAT MUMBAI

Disallowance u/s 14A - Held that:- assessee had sufficient funds available with it to finance its investments and therefore it can be presumed that it had invested its own funds and not borrowed funds which we have seen that were taken for specific purposes and used accordingly. Thus the additions of ₹ 5,50,586/- made rule 8D(2)(ii) as confirmed by CIT(A) is ordered to be deleted by following the ratio laid down in the case of CIT V/s Reliance Utilities and Power Ltd (2009 (1) TMI 4 - BOMB .....

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#8377; 1,94,25,756/- and Amount written off ₹ 1,76,70,049/- totaling to ₹ 8,25,42,577/- were charged and were not having indirect nexus with dividend income. We therefore find merit in the submissions of the ld counsel that disallowance as made by the AO and upheld by CIT(A) is excessive and unreasonable on the ground that there hardly any expenses incurred for the propose of investments. We are in agreement with the CIT(A) that rule 8D is applicable from AY 2008-09 but not blindly w .....

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payment of PF - Held that:- We find from the records and arguments of the counsels that the assessee had paid the PF beyond the grace period after the due date under the relevant Act but well before the due date for filing the return of income u/s 139(1) of the Act. We find merit in the submission of the ld AR that the issue is covered in its favor by the decision of the jurisdictional High Court in the case of CIT Vs Ghatge Patil Transport Ltd (2014 (10) TMI 402 - BOMBAY HIGH COURT) in which i .....

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spect of two warehouses taken from M/S Paras Commercial Centre Pvt Ltd who deducted as compensation for pre-mature termination a sum of ₹ 45,16,000/- whereas the remaining five wharehouses were transferred as part of sump sale. We find merit in the arguments of the assessee that the amount deducted by the licensor on pre-mature termination is admissible u/s 37(1) of the Act as wholly and exclusively for the purpose of business. We also find that the project cargo division of the assessee c .....

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n being loss on account of write off of receivables upon re-assignment in the slump sale of the general cargo division - Held that:- From the records before us we find that the purchaser M/S Excel re-assigned some debts which were part of the net current assets in the slump sale and reduced the purchase price accordingly by ₹ 2,44,22,159.91. The assessee wrote off ₹ 1,76,70,049/- out of this amount claiming the same to be admissible under section 36(1)(vi) of the Act however the same .....

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he purchase price which is clearly mentioned in para 7.1 of the assessment order. In our view the finding of AO and the CIT(A) that the debts were transferred as part of net current assets in the slump sale and the assessee would get double benefit if allowed deduction in respect of write off of the book debts were wrong and against the facts of the case. The assessee had rightly written off the debts and the same were admissible under section 36(1)(vi) of the Act - Decided in favour of assessee .....

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ely. Since these appeals pertains to the same assessee, these appeals are being decided by this common order for the sake of convenience. 2. We will first take up the appeal of the assessee in ITA No 7435/M/2011 AY 2008-09. The assessee has raised the following grounds of appeal: "1. The learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance made u/s. 14A of the Income-tax Act 1961 of ₹ 20,12,208/-. Your appellants submit that in the fact and circumstances o .....

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same ought to be deleted. 3. The learned Commissioner of Income Tax (Appeals) erred in confirming the addition made by the AO of ₹ 56,94,748/- being sundry balances written off. Your appellants submit that in the facts and circumstances of the case and in law, the addition is unwarranted and the same ought to be deleted. 4. The learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance made by the AO of ₹ 1,76,70,049/- being loss on account of write off of rec .....

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(1) of the Act. The assessment was framed vide order dated 24.12.2010 passed u.s 143(3) of the Act at ₹ 161,81,12,620/- by making various additions. 4. The issue raised in the first ground of appeal is against confirmation of addition of ₹ 20,12,208/- by CIT(A) as made by the AO u/s 14A of the Act out of which ₹ 5,50,586/- was for the interest charges and remaining ₹ 14,61,622/- was on account of indirect expenses @ 0.5% of the average investments by rejecting the content .....

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licable from the assessment year 2008-09. 4.1. The ld CIT(A) upheld the additions of ₹ 20,12,208/- made u/s14A on the ground that the application of section 14A rule 8D stands settled by the decisions in the case of Godrej and Boyce Mfg Co Ltd and the AO had rightly invoked the provisions of section 14A rule 8D of the Act. 4.2. Ld AR submitted before us that rule 8D was wrongly invoked by the AO and upheld by the CIT(A) for the reasons that the assessee did not incur any interest or indire .....

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mitted that during the year the assessee sold its general cargo division for a consideration of ₹ 179.05 Cr and it had sufficient funds available for investments and also argued that these funds were temporarily held in MF for business considerations where the total investments were to the tune of Rs, 45,38,51,492/- as on 31.3.2008 and ₹ 13,10,21,919/- on the corresponding date in the preceding previous year. The borrowed funds ₹ 88,43,158/- were taken for specific purpose and .....

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notice the three expenses namely Rent, rates and taxes ₹ 4,54,46,772/-, Legal and professional charges ₹ 1,94,25,756/- and Amount written off ₹ 1,76,70,049/- totaling to ₹ 8,25,42,577/- which were not having indirect nexus with dividend income. The ld Counsel ultimately prayed that the additions of ₹ 20,12,208/- be deleted. Per contra ld. DR relied heavily on the orders of authorities below. 4.3. We have considered the rival submissions and perused the material on r .....

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rave;-vis ₹ 40,30,74,356/- as on 31.3.2007. In our opinion the assessee had sufficient funds available with it to finance its investments and therefore it can be presumed that it had invested its own funds and not borrowed funds which we have seen that were taken for specific purposes and used accordingly. Thus the additions of ₹ 5,50,586/- made rule 8D(2)(ii) as confirmed by CIT(A) is ordered to be deleted by following the ratio laid down in the case of CIT V/s Reliance Utilities an .....

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nt, rates and taxes ₹ 4,54,46,772/-, Legal and professional charges ₹ 1,94,25,756/- and Amount written off ₹ 1,76,70,049/- totaling to ₹ 8,25,42,577/- were charged and were not having indirect nexus with dividend income. We therefore find merit in the submissions of the ld counsel that disallowance as made by the AO and upheld by CIT(A) is excessive and unreasonable on the ground that there hardly any expenses incurred for the propose of investments. We are in agreement w .....

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The ground no. 1 is partly allowed. 5. The second ground is against the confirmation of additions of ₹ 3,64,975/- in respect of late payment of PF. The AO disallowed the PF for late payment beyond the grace period on the basis of tax audit report by rejecting the contention of the assessee the issue was not covered by the provisions of section 43B of the Act but covered by section 2(24)(x) r.w.s 36(1)(va) of the Act. The assessee submitted that the provident fund was paid before the due d .....

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under the relevant Act but well before the due date for filing the return of income u/s 139(1) of the Act. We find merit in the submission of the ld AR that the issue is covered in its favor by the decision of the jurisdictional High Court in the case of CIT Vs Ghatge Patil Transport Ltd 368 ITR 749(Bombay) in which it has been held that the employers as well as the employees contribution were subject to the provisions of section 43B and the assessee was entitled to the deduction in respect ther .....

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M/S Paras Commercial Centre Pvt Ltd beside taking three warehouses from M/S Synergy Logistics Pvt. Ltd and two from M/S Bhave Warehousing and Storage Pvt. Ltd . Upon sale of the general cargo division by the assessee the warehouses taken from former company M/S Paras Commercial Centre Pvt. Ltd were no more required in the business and therefore the lease and license agreement was prematurely terminated on 31.10.2007 and the licensor deducted ₹ 45,16,000/- as compensation of premature termi .....

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ous licensors in respect of warehouses taken on rent for general cargo division which was sold by the assessee during the year and the assets were transferred by way of slump sale by the assessee. The AO held that once the assets including warehouses were transferred to the buyers along with deposits and securities and also taken into account in the net worth of the division sold then the assessee was not in any way connected with the same and therefore claim of write off of ₹ 56,94,748/- .....

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see as such u/s 37(1) could not be wholly and exclusively for the business and once the lease in respect of the three warehouses were transferred to the purchaser, the entire deposits and rent for the unexpired period also stands transferred in slump sale to purchaser and therefore the claim of the assessee was wrong and rightly disallowed by the AO. 6.3. The ld AR submitted before us that both the AO as well as the CIT(A) did not appreciate the reply filed by the assessee vide letter dated 30.1 .....

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torage Pvt. Ltd were transferred as part of the slump sale and all the deposits and rent for the unexpired lease were also transferred as part of net worth assets transferred. The ld AR vehemently submitted that the AO and CIT(A) without even going though the letter filed replying the various queries raised during the scrutiny proceedings came to the wrong conclusion that three warehouses were transferred whereas as a matter of fact five warehouses were transferred to the purchaser and two wareh .....

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relied on the orders of authorities below. 6.5. We have considered the rival submissions and perused the materials on records and find that the assessee had terminated the lease and license in respect of two warehouses taken from M/S Paras Commercial Centre Pvt Ltd who deducted as compensation for pre-mature termination a sum of ₹ 45,16,000/- whereas the remaining five wharehouses were transferred as part of sump sale. We find merit in the arguments of the assessee that the amount deducted .....

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ction of ₹ 45,16,000/- out of total claim of ₹ 56,94,748 thus sustaining the addition to the extent of ₹ 11,78,748/- . 6.6 Ground no 3 is partly allowed. 7. The issue in the 4th ground of appeal is against the confirmation of addition of ₹ 1,76,70,049/- being loss on account of write off of receivables upon re-assignment in the slump sale of the general cargo division. The facts in brief are that the assessee sold its general cargo division vide agreement dated 04.04.2007 .....

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efined under the head "Adjustments to Purchase Price" in the definition clause and if any adjustment was required in terms of the above clause, the purchaser had the option to re-assign to the appellant any part of the assets forming part of the net current assets. The purchaser as per the said clause re-assigned debts forming part of the current assets to the assessee and purchase price was reduced by an amount of ₹ 2,44,22,159.91 being the difference between the estimated net w .....

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of the assessee for the reasons that once the entire division was sold as slump sale and the due consideration was paid by the purchaser on the date of sale including for debtors then the benefit of write off could not be allowed to the assessee as the assessee had already claimed the said debtors from sales consideration and the benefit of such debts was taken while computing the long term capital gain. 7.2. The ld CIT(A) also confirmed the addition by holding that the debtors were transferred .....

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on the basis of estimated working capital and estimated current assets including debts subject to adjustments if any as defined in the "Adjustment to purchase Price" which was placed at page 55 of the paper book. Under the said arrangements the purchaser had the right to re-assign to the assessee any part of the assets which were forming part of the net current assets. Ld counsel submitted that under this clause, the purchaser M/S Excel re-assigned book debts to the assessee by reduci .....

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ofits of ₹ 72,30,254/-.The AO as well CIT(A) observation was wrong and unfounded for the reasons that by allowing the write off of ₹ 1,76,70,049/-, the assessee would be getting double benefit. The purchaser had reduced the said amount from the consideration paid to the assessee and therefore whatever was given back under the "Adjustments to Purchase Price" clause had to be written off as the same was not part of the slump sale. Finally the Ld AR prayed for reversing the or .....

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wn and operate its project division. All the income and expenses relating to the general cargo divisions till 30.04.2007 were duly accounted for thereby showing a net profit of ₹ 72,30,254/-.The agreement transferring the general cargo division provided for determination of the purchase price as per clause 3 of the agreement (placed at page 61 of the paper book) was subject to any adjustments which was provided in the adjustment clause in the definition clause which is placed at page 55 of .....

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he net current assets under slump sale and the assessee could not be allowed double benefit. Even the CIT(A) upheld the additions on the same analogy. We find that the both AO and CIT(A) had completely ignored the fact that under "Adjustment to Purchase Price" the purchaser reassigned some debts amounting to ₹ 2,44,221,60/- to the assessee and assessee reduced the same from the purchase price which is clearly mentioned in para 7.1 of the assessment order. In our view the finding .....

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is allowed. 9. In the result the appeal of the assessee is partly allowed. 10. Now, we will take up the appeal bearing ITA No:- 7849/Mum/2011 by the Revenue. 11. The grounds of appeal taken by the revenue are reproduced below: "1. The order of the CIT(A) is opposed to law and facts of the case. 2. On the facts and the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition u/s. 40(a)(ia) in connection with leased line charges to VSNL following ITAT Mumbai judgem .....

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nd further submitted that in view of the CBDT Circular No.21/2015, dated 10.12.2015 issued by the Central Board of Direct Taxes, Department of Revenue, Ministry of Finance, Government of India, the appeal is not maintainable and be dismissed. The ld. DR also agreed to the submission of the ld. AR. 11.2 We have heard the rival submissions and perused the material on record. We find from the records available before us that the tax involved in the disputed issue is below ₹ 10 Lacs and theref .....

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. 11.4 In the result, the appeal of the Revenue is dismissed. 12. Now, we will take up the appeal bearing ITA. No:- 6518/Mum/2012 filed by the assessee. 12.1 The grounds taken by the assessee are as under : "1 The learned CIT(A) erred in confirming the disallowance u/s. 14A amounting to ₹ 24,63,205/- worked out as per Rule 8D. Your appellants submit that the disallowance is unwarranted and the same ought to be deleted. Without prejudice to the above, your appellants submit that the di .....

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e case of the assessee was selected for scrutiny and statutory notices u/s. 143(2) and 142(1) were duly served upon the assessee. During the course of assessment proceedings the AO found that the assessee had received income by way of dividend of ₹ 2,01,81,125/- and claimed the same as exempt u/s. 10 of the Act. The AO also found that the assessee had investments of ₹ 21,51,26,864/- as on 23.03.2009 and therefore, as the assessee had not disallowed any expenses relating to dividend i .....

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