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2015 (12) TMI 1532 - ITAT PUNE

2015 (12) TMI 1532 - ITAT PUNE - TMI - Deduction under section 36(1)(vii) in respect of provisions for bad and doubtful debts - Held that:- The SC in the case of Vijya Bank vs. CIT [2010 (4) TMI 46 - SUPREME COURT ] has held that the provision for bad and doubtful debts is allowable as deduction in as much as what is necessary is to write off to P & L A/c and it is not necessary to credit the debtors account. Thus we deem it appropriate to remit this issue back to the Assessing Officer for decid .....

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on 80HHC - Held that:- The issue has already decided against the assessee by the Tribunal in the assessment year 1997-98

Amount received as rent from Sai Service has been reduced twice - said amount has been shown twice, in miscellaneous income and as well as separately as rent from Sai Service - Held that:- We deem it appropriate to remit this issue back to Assessing Officer for limited purpose of verification. If the amount has been deducted twice the necessary correction may be car .....

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e Act, 1985 w.e.f. 01.04.1986, we are of the view that in cases of payment of lump sum consideration for acquiring technical know-how, the provisions of section 35AB of the Act are attracted and the expenditure is not allowable under section 37(1) of the Act, which is general provision and specifically excludes expenditure covered under sections 30 to 36 of the Act. Consequently, the said expenditure is to be amortized under section 35AB of the Act and cannot be allowed as a deduction in the yea .....

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applied to the lump sum consideration paid for acquisition of technical know-how by the assessee.

Deduction under Section 37(1) of the Act on account of exchange fluctuation loss - Held that:- We are of the view that if the exchange fluctuation loss has been wrongly computed, the same has to be reworked. We deem it appropriate to restore this issue back to the file of Assessing Officer for re-computing exchange fluctuation loss and arrive at the correct amount of deduction u/s. 37(1) .....

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filed its return of income for the impugned assessment year on 30-11-1998 declaring income of ₹ 9,60,36,180/-. Thereafter, the assessee filed revised return of income on 29-01-1999 declaring income of ₹ 9,35,20,431/-. The revised return was processed u/s. 143(1)(b). The provisions of excise duty ₹ 3,87,76,398/- claimed by the assessee was disallowed and the excess deduction u/s. 80HHC on the same was allowed. The assessee again revised its return on 30-03-2000 declaring income .....

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00, the assessee filed appeal before the Commissioner of Income Tax (Appeals) assailing the additions/disallowances made by the Assessing Officer. The Commissioner of Income Tax (Appeals) vide impugned order partly accepted the appeal of the assessee. Still aggrieved, the assessee is in second appeal before the Tribunal. 3. The assessee has assailed the findings of Commissioner of Income Tax (Appeals) on six counts. The grounds raised in the appeal are dealt with here-in-under in seriatim. The g .....

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e CIT(A) ought to have granted deduction on account of the same. Sandvik Asia Ltd. ( the Appellant ) prays that deduction for the aforesaid provision be granted. 3.1 The assessee made provision of ₹ 3,83,94,000/- for bad and doubtful debts. The ld. AR submitted that the sundry debtors shown in the balance sheet are net of provisions for doubtful debts. The ld. AR referred to the balance sheet as on March 31, 1998 and the Auditors report u/s. 44AB of the Act. The ld. AR pointed out that in .....

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y the decision of the Hon'ble Supreme Court of India in the case of Vijaya Bank Vs. Commissioner of Income Tax reported as 323 ITR 166 (SC). The ld. AR also placed reliance on the decision of Hon'ble Apex Court in the case of TRF Ltd. Vs. Commissioner of Income Tax, 323 ITR 397 (SC). 3.2 On the other hand the ld. DR submitted that the debts have not been written off in the books of the assessee. The parties from whom debts are irrecoverable are not identifiable. The ld. DR vehemently sup .....

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(supra). The Hon'ble Apex Court in the said case while deliberating on the issue has dealt with two questions: i. The manner in which the write off is to be done. ii. Whether it is imperative for the assessee to close each and every individual account and its debtors in its books or a mere reduction in the Loans and Advances or Debtors on the asset side of its balance sheet to the extent of the provision for bad and doubtful debt is sufficient to constitute a write off? While answering first .....

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It is important to note that the assessee-bank has not only been debiting the profit and loss account to the extent of the impugned bad debt, it is simultaneously reducing the amount of loans and advances or the debtors at the year-end, as stated hereinabove. In other words, the amount of loans and advances or the debtors at the year-end in the balance-sheet is shown as net of the provisions for the impugned debt. However, what is being insisted upon by the Assessing Officer is that mere reducti .....

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36(1)(vii) of the 1961 Act, twice over. (order of the CIT (Appeals) at pages 66,67 and 72 of the paper book, which refers to the apprehensions of the Assessing Officer). In this context, it may be noted that there is no finding of the Assessing Officer that the assessee had unauthorisedly claimed the benefit of deduction under section 36(1)(vii), twice over. The order of the Assessing Officer is based on an apprehension that, if the assessee fails to close each and every individual account of it .....

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ent years. There is also a flipside to the argument of the Department. The assessee has instituted recovery suits in courts against its debtors. If individual accounts are to be closed, then the debtor/defendant in each of those suits would rely upon the bank statement and contend that no amount is due and payable in which event the suit would be dismissed. 9. Before concluding we may refer to an argument advanced on behalf of the Department. According to the Department, it is necessary to squar .....

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and loss account which would result in escapement of income from assessment. On the other hand, if bad debt is written off by closing the borrower's account individually, then the repaid amount in subsequent years will be credited to the profit and loss account on which the assessee-bank has to pay tax. Although, prima facie, this argument of the Department appears to be valid, on a deeper consideration, it is not so for three reasons. Firstly, the head office accounts clearly indicate, in t .....

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in any event, section 41(4) of the 1961 Act, inter alia, lays down that, where a deduction has been allowed in respect of a bad debt or a part thereof under section 36(1)(vii) of the 1961 Act, then, if the amount subsequently recovered on any such debt is greater than the difference between the debt and the amount so allowed, the excess shall be deemed to be profits and gains of business and, accordingly, chargeable to income-tax as the income of the previous year in which it is recovered. In th .....

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the decision rendered by the Hon'ble Supreme Court of India in the case of Vijaya Bank Vs. Commissioner of Income Tax (supra). Accordingly, this ground of appeal of the assessee is allowed for statistical purposes. 4. Ground No. 2 and findings thereon are as under: 2. Exemption under section 10(33) of the Act in respect of dividend income on Master shares and other units of Unit Trust of India ('UTI). 2.1. The CIT(A) erred in rejecting the Appellant's claim that dividend income of & .....

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ter Shares and other units of UTI. The assessee had claimed the said dividend income as exempted u/s. 10(33) of the Act. Whereas the contention of the Revenue is that the dividend on unit of UTI and Master Share of UTI are not exempted u/s. 10(33) of the Act as such the units of UTI are not shares. The ld. AR of the assessee submitted that as per the provisions of section 32(3) of the Unit Trust of India Act, 1963, any distribution of income received by a unit holder from the UTI shall be deemed .....

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s appeal in ITA No. 579/PN/2000 for assessment year 1995-96 against the order of Commissioner of Income Tax, Pune passed u/s. 263 of the Act. 4.2 On the other hand the ld. DR vehemently supported the findings of the Commissioner of Income Tax (Appeals). The ld. DR submitted that the provisions of section 10(33), 115O and 80L are inter related. Up to assessment year 1999-2000 income received in respect of units of UTI were eligible for deduction u/s. 80L of the Act. After its omission w.e.f. asse .....

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ention of the assessee is that in view of provisions of section 32(3) of the UTI Act, the dividend income earned by assessee on the units of Master Share of UTI and units held under other schemes of UTI is at par with the dividend on shares of a company. We find that similar issue was raised in assessee s own case for assessment year 1995-96 in proceedings u/s. 263 of the Act. The Tribunal in appeal by the assessee held that the assessee would be eligible to claim deduction only to the extent of .....

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deduction of ₹ 8,13,240/- was required to be withdrawn. In fact, the assessee, during the year under consideration, received dividend on master shares of UTI at ₹ 13,55,400/-. The assessee claimed deduction u/s 80M on this dividend at 100%. After rejecting the contention raised on behalf of the assessee, the CIT held that the order passed by the A.O for A.Y. 1995-96 was erroneous and prejudicial to the interest of revenue as the assessee was entitled to deduction only at 40% as again .....

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erein it was stated that under the said Act, section 32(3)(b) states that UTI shall be deemed to be a company. Similar provisions are also included in the Income-tax Act1961. It was contended that master shares were issued not under the normal scheme of UTI but in pursuance of the amendment to the UTI Act, wherein the UTI was permitted to issue different schemes. It was stated that the Mutual Fund (Subsidiary) Unit Scheme 1986 of UTI was notified on 9-10-1986 under which different units were off .....

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t to the provisions of the Mutual Fund (Subsidiary) Unit Scheme of 1986. Hence it was urged be considered as dividend from other companies and should be entitled to 100% deduction for the purposes of section 80M and not 40%. In this background the order of the CIT is opposed. On the other hand, Ld. DR submitted the order of CIT under provisions of 263 is justified in its facts and circumstances Ld. DR raised detailed conclusion on behalf of revenue to support the order of CIT. 3. After going thr .....

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y makes the following Unit scheme....." The above makes it clear that this is nothing but a different scheme of issuing units of UTI." In this background, the provisions of section 80-M of the Income-tax Act, 1961 was analyzed. The proviso to section 80M reads as follows: [Provided that where any domestic company receives any income by way of dividends from the units of the Unit Trust of India established under the Unit Trust of India Act1963 (52 of 1963), such domestic company shall, .....

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96 and any subsequent previous year.] 4. The distribution of units of UTI is at par with the dividends. The proviso to section 80-M refers to the income by way of dividend from UTI and does not make a distinction between various schemes. The scheme is not standing at its own purpose but it is the normal procedural aspect. Basically it is under the umbrella of UTI. So it comes under the provision, according to which where any domestic company receives any income by way of dividends from the units .....

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lowed on such income in respect of the previous year relevant to the assessment year commencing on the 1st day of April 1996 and any subsequent previous year. Under circumstances CIT was justified in invoking provision of section 263 and reached to judicious finding which need no interference from our side. Accordingly, the order of the CIT is upheld on point of validity as well as on merit. Accordingly the appeal of the assessee is dismissed. Thus, in view of the order of Co-ordinate Bench, we .....

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68,654, interest on inter-corporate deposits of ₹ 11,46,010 and other interest of ₹ 5,92,241) should be considered as "Profits and Gains of Business or Profession" for the purposes of Section 80HHC of the Act. Having held that dividend of ₹ 19,24,960 from units of Master shares and UTI referred to in Ground 2 above is not an exempt income under section 10(33) of the Act. the C1T(A) erred in rejecting the Appellant's claim that said income distributed on Master sha .....

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28,000 recovered from Managing Director's salary should be made under Explanation (baa) to Section 80HHC of the Act while computing "Profits and Gains of Business or Profession". The Appellant prays that no such adjustment should be made on account of the training course fees and rent recovered from Managing Director's salary. 3.3 The C1T(A) erred in rejecting the Appellant's claim that 90% of ₹ 23,664 being rent received from Sai Service, has been deducted twice as p .....

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₹ 23,664 should be excluded only once while computing deduction under section 80HHC of the Act. 5.1 The ld. AR of the assessee submitted at the outset that the issues raised in ground Nos. 3.1 and 3.2 of the appeal have been decided against the assessee by the Tribunal in assessee s own case in ITA No. 525/PN/2003 for the assessment year 1997-98 decided on 10-04-2015. However, in respect of ground No. 3.3 the ld. AR contended that the amount of ₹ 23,664/- rent received from Sai Servi .....

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orders of authorities below. The ld. AR has fairly conceded that the issue raised in ground Nos. 3.1 and 3.2 of the appeal have been decided against the assessee by the Tribunal in assessee s own case in ITA No. 525/PN/2003 (supra). The ld. AR has placed on record a copy of the aforesaid order of the Tribunal. Therefore, both the above grounds are dismissed in the same terms. In respect of ground No. 3.3 the contention of the ld. AR is that the amount of ₹ 23,664/- received as rent from Sa .....

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eon are as under: 4. Addition of interest income of ₹ 18,14,272 paid to Incometax Department 4.1 The CIT(A) erred in not determining a loss of ₹ 9,24,983 (being the difference between interest of ₹ 18,14,272 paid on income tax and interest of ₹ 8,89,289 granted on income-tax refund) under the head 'Income from other Sources". The CIT(A) ought to have determined the same in view of the Honourable Income-tax Appellate Tribunal's order in the Appellant's own .....

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find that identical issue was raised by the assessee as ground No. 3 in ITA No. 525/PN/2003 (supra). The Coordinate Bench of the Tribunal in para 42 of the order has dealt with this issue and has dismissed this ground. Respectfully following the same this ground of appeal of the assessee is dismissed for the similar reasons. 7. Ground No. 5 of the appeal and findings thereon are as under: 5. Deduction under Section 37(1) of the Act in respect of lump sum know how fees. 5.1 The learned CIT(A) err .....

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ranting deduction of only 1/6th of second installment of technical know paid in the previous year relevant to the assessment year 1998-99; and invoking provisions of Section 40(a)(i) of the Act and not granting any deduction for third installment of technical know fees provided for in the hooks of account and in respect of which the Appellant had also provided for tax deductible at source under Chapter XVIIB. In view of the above, the Appellant prays as follows: Without prejudice to the Appellan .....

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count of the Appellant) be allowed under section 37(1) of the Act, without invoking the provisions of Section 40(a)(i) of the Act; Without prejudice to the above, the Appellant prays that a deduction for ₹ 1,05,73,666 being R&D cess and taxes paid on second and third installment of technical knowhow tees be allowed under section 37(1) of the Act read with section 43B of the Act and deduction of ₹ 21,666,664 [comprising of technical know-how fees paid as shown in Appendix I] under .....

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3,822,77 be allowed under section 35AB of the Act [being 1/6th of total technical know-how fees paid and R&D cess paid on second and third installment and taxes paid thereon]. 7.1 The ld. AR submitted that the issue raised in ground No. 5 is similar to the one raised in assessment year 1997-98. The Co-ordinate Bench of the Tribunal has held that the provisions of section 35AB of the Act are to be applied to the lump sum consideration paid for acquisition of technical know-how by the assessee .....

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(supra). The relevant extract of the order of Tribunal is reproduced as under: 31. In view of introduction of provisions of section 35AB of the Act which were inserted by the Finance Act, 1985 w.e.f. 01.04.1986, we are of the view that in cases of payment of lump sum consideration for acquiring technical know-how, the provisions of section 35AB of the Act are attracted and the expenditure is not allowable under section 37(1) of the Act, which is general provision and specifically excludes expend .....

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on 37(1) of the Act are not applicable for units established prior to 01.04.1998. Following the same parity of reasoning, we hold that provisions of section 35AB of the Act are to be applied to the lump sum consideration paid for acquisition of technical know-how by the assessee. 32. Another plea raised by the assessee was that the assessee had only acquired the right to use the technical know-how. The reading of clauses of agreement with special reference to clause 8 i.e. effect of termination .....

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d technical know-how and we find no merit in the plea of the assessee that the consideration to be paid in installments was paid for the use of technical know-how and not for the acquisition of technical know-how and hence not covered under section 35AB of the Act. The section itself provides that any lump sum consideration paid for acquiring any know-how, for use, for the purpose of his business is to be deducted in six installments. Under the agreement, the technical know-how received by the a .....

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ed the technical know-how is to be subjected to the provisions of section 35AB of the Act vis-à-vis its claim of deduction of the said amount. The CIT(A) vide observations on page 11 of appellate order had held that the liability for payment of technical know-how accrued in assessment year 1997-98 itself and the deduction under section 35AB of the Act had to be allowed on full amount. The Revenue is not in appeal against the said observations of the CIT(A). Accordingly, we uphold the orde .....

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o be eligible for deduction under section 35AB of the Act on the full amount, had not allowed the claim of the assessee in view of nondeduction of tax at source on the balance two installments, which were paid in the succeeding assessment years, in view of the provisions of section 40(a)(i) of the Act. Admittedly, the assessee had deducted tax at source on the installment paid during the financial year and has paid tax at source on the balance installments in the succeeding years. In this regard .....

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wing the order of Co-ordinate Bench we allow this ground of appeal of the assessee in the same terms. 8. Ground No. 6 of the appeal and findings thereon are as under: 6. Deduction under Section 37(1) of the Act on account of exchange fluctuation loss of ₹ 51,72,003. 6.1 The learned CIT(A) erred in rejecting the Appellant's claim that exchange fluctuation loss of ₹ 51,72,003 is deductible under section 37( 1) of the Act. The above loss was incurred by the Appellant on actual payme .....

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