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2016 (5) TMI 1259 - ITAT KOLKATA

2016 (5) TMI 1259 - ITAT KOLKATA - TMI - Addition of interest income as per CASS - assessee failed to include a sum of ₹ 1.50 lakh as interest income in its total income as shown in the CASS - Held that:- Assessee was following the mercantile system of accounting but the real income should be liable to tax irrespective method of accounting system followed by assessee. Unless the assessee actually charged the interest or interest in real terms accrued to the assessee, it cannot be brought t .....

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DELHI ] - Decided in favour of assessee.

Non reducing the lower of loss brought forward or unabsorbed depreciation as per books of account while computing the book profit u/s 115JB - Held that:- As per the provision of law, assessee is entitled to claim the deduction for lower of the amount either loss brought forward or unabsorbed depreciation. We accordingly direct the AO to allow the loss brought forward or unabsorbed depreciation whichever is less as per books of account of the as .....

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. Accordingly we reverse the orders of Authorities Below and delete the addition made by AO.- Decided in favour of assessee.

Addition to the book profit u/s.115JB being Provision for NP and Provision for Dimunition in value of investments - Held that:- We find that the diminution in the value of investment is not permanent in nature. The value of investment made in the shares and securities keep on changing depending upon the market rate. Therefore, there can be a case for a particula .....

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s it is permanent in nature.

The action taken by Authorities Below in connection the diminution in the value of investment is correct and within the ambit of law. Hence, we confirm the order of lower authorities with regard to addition made by Authorities Below under clause (i) to the Explanation of Sec. 115B of the Act as far as Investment is concern. This ground of assessee’s appeal is partly allowed. - ITA No. 1838/Kol /2010 - Dated:- 27-5-2016 - Shri Waseem Ahmed, Accountant Membe .....

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-08. Shri D.S.Damle, Ld. Authorized Representative appearing on behalf of assessee and Shri Sallong Yaden, Ld. Departmental Representative appearing on behalf of Revenue. 2. Assessee has filed revised Form-36 together with consolidated grounds, which reproduced below:- 1. The Commissioner of Income Tax (appeals) erred in upholding the action of the Assessing Officer in disallowing u/s. 14A a part of interest and expenses allegedly as relatable to earning of exempt dividend income by applying Rul .....

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and in the circumstances of the case. 4. On the facts and in the circumstances of the case the authorities below erred in not reducing the lower of loss brought forward or unabsorbed depreciation as per books of account in computing book profit u/s. 115JB of the Act. 3. First issue raised in this appeal of assessee is as regards that Ld. CIT(A) erred in confirming the action of Assessing Officer by sustaining the disallowance u/s 14A of the Act r.w.s. Rule 8D of the IT Rules, 1962. 3.1 Facts in .....

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terest expenses of ₹ 1,18,14,655/- and other expenses of ₹ 9,55,832/-. The disallowance made under Rule 8D of the IT Rules, 1962 was added to the total income of assessee. 4. Aggrieved assessee preferred an appeal before Ld. CIT(A) where assessee submitted that its own case for AY 2002-03 in ITA No. 318/Kol/2006 & 283/Kol/2006 dated 10.08.2007 in C Bench has upheld the order of Ld. CIT(A) directing the AO to disallow the interest of borrowed capital in the proportionate of divide .....

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5. Before us Ld. AR submitted two sets of documents which are running pages 1 to 86 and 1 to 38 respectively. He stated that Tribunal has been consistently disallowing the expense @ 1% of the dividend income and prayed to follow the same decision. Ld. AR further submitted that in case applying the Rule 8D of the IT Rules, 62 in relation to the interest expense then net interest (interest receipt as income minus interest paid as expense) should be considered. On the other hand, Ld. DR has relied .....

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he rival submissions and perused the orders of authorities below. Sec. 14A provides that any expenditure relating to earning of income which is not includible in the total income; cannot be allowed in computing the total income. Language of Sec. 14A indicates that an expenditure incurred in relation to earning of exempt income is not permissible and therefore the nexus of the expenditure should be established with the tax free income. Where an assessee incurs composite expenditure which produces .....

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t. In the circumstances, we do not find any reasons for AO to adopt entirely different formula for quantifying the amount disallowable u/s 14A of the Act. For this reasons therefore we do not find any infirmity in the CIT(A) s order directing AO to compute the disallowance u/s 14A on the basis of dividend received which was exempt u/s 10(33) of the Act. Ground No.3 of the Revenue s appeal is therefore rejected. 14. In the course of hearing of appeal the A/R submitted working chart for the amount .....

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D Interest relatable to earning exempt 320956 Income (A/B) x C 15. On perusal of the statement, in the light of the ITAT Kolkata s finding in Assessment Year 2002-03, I find that disallowance of interest u/s. 14A could only be for ₹ 3,20,956/-. Sec.36(1)(iii) of the Act allows deduction for interest paid on borrowed capital which is used for business purposes. The deduction allowable u/s. 36(1)(iii) is however now subject to restrictions placed by Sec. 14A of the Act. Sec. 14A provides fo .....

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ssessee has produced corresponding or matching income. From the co-joint reading of provisions of Sec. 14A and 36(1)(iii) I hold that only the interest which was incurred in relation to earning dividend, the disallowance could be made u/s. 14A of the Act. For these reasons therefore I hold that AO could validly make disallowance out of interest paid amounting to ₹ 3,20,956/-. The as therefore gets relief of ₹ 3,97,88,674/-. Ground Nos. 2 & 3 are partly allowed. 7. After hearing b .....

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dismissed. Taking a consistent view in assessee s own case (supra) we accordingly restore this issue to the file of AO to work out the disallowance in proportionate to the gross income of assessee in accordance with the law. This ground of assessee s appeal is allowed for statistical purpose. 7. Second issue in this appeal of assessee is as regards that Ld. CIT(A) erred in confirming the action of AO in sustaining the addition of interest income as per CASS. During the course of assessment proce .....

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y, assessee prayed for deletion of notional interest income of Rs. 1.50 lakh and deleted the same. However, Ld. CIT(A) disregarded the plea taken before him by holding as under:- I have gone through the submissions of the appellant and also the order of the AO. The AO made the addition on the basis of CASS. The appellant has not received any TDS certificate from the said party. As seen from the assessment order the appellant company is not registered as an NBFC nor it is privileged to enjoy the .....

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treat the bad debts. Taking into consideration the information from CASS, the AO made the addition. The addition made by the AO is confirmed taking the above discussion into consideration. This ground of appeal is dismissed. Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us. 9. Before us Ld. AR submitted that the party has deducted the TDS which was being shown under CASS but the same was never taken in the income of assessee. On the other hand, Ld. DR has rel .....

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real income should be liable to tax irrespective method of accounting system followed by assessee. In this connection, we relied on the decision of Hon'ble Supreme Court in the case of Godhra Electricity Co. Ltd. vs. CIT 225 ITR 746 (SC) wherein the extract reproduced below:- The tribunal had rightly held that the claim at the increased rates as made by the assessee company on the basis of which necessary entries were made, represented only hypothetical income and the amount in question bro .....

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receipt but the substance of the matter is income. If income does not result at all. There cannot be a tax even though in book keeping, an entry is made about a hypothetical income, which does not materialize. After referring to the ratios laid down in the earlier decisions, the Apex Court ultimately held in the said decision that even though the revision in tariff was approved by the Supreme Court and the assessee had made entries in the books for electricity charges at enhanced rates yet the .....

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o interest was in fact charged by the assessee the AO could not presume accrual of income in absence of evidence indicating that the interest was actually charged. The same principle has also been laid down in the decision of the Madras High Court in the case of CIT v. Motor Credit Co. Pvt. Ltd. [127 ITR 572] and by the Punjab & Haryana High Curt in the case of Ferozpur Finance Pvt. Ltd. v. CIT [124 ITR 619]. Similar view has also been taken by the Calcutta High Court in the case of CIT vs. .....

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wherein the Tribunal has held:- 5. Having heard the learned Departmental Representative and having perused the material on record, we are of the considered view that based on 26AS along no additions can be made. This can at best be a starting point for necessary verification by these, but it cannot, on standalone basis, justify the impugned additions. However, we also considered it appropriate to remit the matter to the file of the Assessing Officer for strictly limited purpose of verifying the .....

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to the file of the Assessing Officer. Needless to add that any material, adverse to the assessee, will have to be confronted to the assessee by the Assessing Officer, and that, in case Assessing Officer intends to pass any fresh order as a result of these directions, he will do so only after giving due and fair opportunity of hearing to the assessee, in accordance with the law and by way of a speaking order. Taking a consistent view on the aforesaid order in the case of Devendra Nath Dewedi (sup .....

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he expense of Rs. 1,29,11,487/- while working out the book profit under the provision of Minimum Alternate Tax (MAT for short) which was subsequently confirmed by Ld. CIT(A). Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us. 13. Before us Ld. AR submitted that disallowance made by AO u/s 14A of the Act cannot be applied in terms of clause (f) of the Explanation to Sec. 115JB of the Act. On the other hand, Ld. DR relied on the orders of Authorities Below. 14. W .....

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u/s. 115JB of the Act. The AO's action has been confirmed by the CIT(A). Both the authorities have applied Rule 8D of the Income-tax Rules while computing the amount of expenditure disallowable u/s. 14A of the Act. As already held above, the provisions of Rule 8D are not applicable to the present assessment year under consideration. Therefore, disallowance of expenditure by applying Rule 8D is not justified. Further, no actual expenditure was debited in the profit & loss account relating .....

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1 (Del), wherein it has been held that provisions of sub-sec. (2) & (3) of section 14A cannot be imported into clause (f) of the Explanation to sec. 115JA of the Act. In this view of the matter, we therefore, delete the disallowance of expenses confirmed by the CIT(A) while computing book profit under sec. 115JB of the Act. In other words, no addition to the book profit shall be made on account of alleged expenditure incurred to earn exempt income while computing income u/s115JB of the Act. .....

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of the Act. 16. At the outset, we find that as per the provision of law, assessee is entitled to claim the deduction for lower of the amount either loss brought forward or unabsorbed depreciation. We accordingly direct the AO to allow the loss brought forward or unabsorbed depreciation whichever is less as per books of account of the assessee in terms of clause (iii) u/s 115JB of the Act. This ground is allowed in favour of assessee accordingly to law. 17. Last additional ground raised by asses .....

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pectively for the purposes of section 115JB of the Act. 18. At the outset, we observe that this issue is squarely covered in favour of assessee and against the Revenue by the judgment of jurisdictional High Court in the case of Emami Ltd. v. CIT (2011) 337 ITR 470 (Cal) wherein it was held:- the provisions of sections 234B and 234C of the Income-tax Act, 1961, are mandatory in nature. However, in order to attract these provisions, it must be established that the assessee had the liability to pay .....

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the assessment year is over, the assessee had no liability to pay advance tax. For the assessment year 2001-02, the assessee was not liable to tax under section 115JB. By the Finance Act, 2002, section 115JB was amended with retrospective effect from April 1, 2001. In view of the amendment, the assessee was not in a position to deduct the sum of ₹ 26.51 crores withdrawn from the revaluation reserves. Thus, the as recomputed the book profit under section 115JB for the assessment year 2001-0 .....

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at the last date of the relevant financial year was March 31, 2001, and on that day, admittedly, the assessee had no liability to pay any amount of advance tax in accordance with the law then prevailing. The amended provisions of section 115JB having come into force with effect from April 1, 2001, the assessee could not be held a default with respect to payment of advance tax. On the last date of the financial year proceeding the relevant assessment year, as the book profits of the assessee in a .....

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the aforesaid addition made u/s 234B and 234C in view of the aforesaid judgment of jurisdictional High Court in the case of Emami Ltd. (supra). Accordingly we reverse the orders of Authorities Below and delete the addition made by AO. 19. Coming to assessee s additional ground filed on 13.01.2015, which reproduced below:- Additional Grounds 1. For that on the facts and n the circumstances of the case, the CIT(A) erred in upholding the addition to the book profit u/s.115JB of ₹ 26,72,794/- .....

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held the said Provisions were in the nature of actual write off and in that view of the matter, these provisions should not have been added in arriving at book profits u/s 115JB of the Act. 20. Assessee submitted that Ld. CIT(A) erred in upholding the addition to the book profit u/s 115JB of the Act in terms of the clause (i) to the Explanation of Sec.115JB of the Act on account of following:- (i) Provision for sundry debtors of ₹ 26,72,794/-; (ii) Provision of diminution in the value of .....

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as carried before Ld. CIT(A) who after hearing assessee has sustained the addition made by AO for working out the book profit u/s 115JB of the Act. Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us. 22. Before us Ld. AR submitted that assessee has not credited any provision against sundry debtors and investment as envisaged in clause (i) to the Explanation to Sec.115JB of the Act. The assessee has actually written off the respective assets and therefore these t .....

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s and diminution in the value of investment on the liability side of its balance-sheet by creating any provision. Now the question before us is as to whether the amount actually written off against the sundry debtors and the value of investment requires any addition for working out the book profit u/s 115JB of the Act. We, with regard to the bad debt actually written off in the books of account, find that the action of the assessee is within the purview of law and outside the purview of the prov .....

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ted to the facts of the case. Item (c) in section 115JA and 115JB(1) are identical. In order to attract the Explanation the debt which is doubtful or bad should satisfy the requirement contemplated in item (c) of the Explanation. It is the amount or amount set aside as provisions made for meeting the liability other than the ascertained liabilities. In the instant case also the bad and doubtful debt for which a provision is made which is in the nature of diminution in the value of any asset woul .....

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CIT [2010] 323 ITR 166/190 Taxman 257 where the Apex Court had an occasion to consider this Explanation. It accepted the argument on behalf of the revenue to the effect that the Explanation makes it very clear that there is a dichotomy between actual write off on the one hand and provision for bad and doubtful debt on the other. A mere debit to the profit and loss account would constitute a bad and doubtful debt, but it would not constitute actual write off and that was the very reason why the E .....

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debiting the profit and loss account and creating a provision for bad and doubtful debt, the assessee correspondingly simultaneously obliterated the said provision from its accounts by reducing the corresponding amount from loans and advances/debtors on the assets side of the balance sheet and consequently, at the end of the year, the figure in the loans and advances or the debtors on the assets side of the balance sheet was shown as net of the provision for the impugned bad debt. Then the said .....

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in the first place if the bad debt or doubtful debt is reduced form the loans and advances or the debtor from the assets side of the balance sheet the Explanation to section 115JA or 115JB is not at all attracted. In that context even if amendment which is made retrospective the benefit given by the Tribunal and the appellate Commissioner to the assessee is in no way affected. In that view of the matter, there is not merit in this appeal. Respectfully following the precedents, as above, we allow .....

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