TMI Blog2011 (4) TMI 1404X X X X Extracts X X X X X X X X Extracts X X X X ..... ances of the case and in law, the learned CIT(A) erred in confirming disallowance of provision for foreseeable losses on contract amounting to ₹ 460.77 lakhs. The CIT(A) failed to appreciate that the loss was booked as per the method of accounting consistently followed and as mandated by Accounting Standard 7 on Construction Contract. Ground Nos.1 2 : 2. After hearing both the parties, we find that during the assessment proceedings the AO noticed that the assessee had made investments amounting to ₹ 93.96 crores. It was further noticed that the assessee had debited interest amounting to ₹ 35.26 crores and, therefore, the assessee was requested to show cause why interest paid on borrowed funds should not be attributed to the investments in shares and disallowed u/s.14A. In response, it was submitted that the investments had been made for the purpose of business consideration and capital appreciation and not only for earning dividend. It was also submitted that if any interest was to be disallowed, then the same would work out to ₹ 2,34,93,943/-. Working of the same was furnished. The AO observed as under : The contentions of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able losses amounting to ₹ 460.77 lakhs. According to him, this was only a provision and therefore the same was disallowed. 8. On appeal before CIT(A), it was submitted that the assessee was following percentage completion method of accounting as prescribed under Accounting Standard 7 on Construction Contracts by the Institute of Chartered Accountants of India. As per this method, the income was being declared on anticipatory basis and therefore anticipatory losses were also accounted for. The ld. CIT(A) decided the issue against the assessee vide para 17, which is as under : 17. I have carefully considered the above facts and find no merit in the contentions of the appellant. Perusal of the profit and loss account reveals that the appellant has disclosed income and also expenses from the various projects undertaken as receipts amount go ₹ 5373.26 lakh while the expenses on projects has been disclosed at ₹ 2906.72 lakh as per schedules 9 and 10 of the Balance Sheet. Over and above, sum of ₹ 460.77 lakh has been claimed as deductible, being part of Other expenses of ₹ 1604.90 lakh as per schedule-13. the appellant has claimed that such fores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in nature. 14. After hearing both the parties, we find that during assessment proceedings the AO noticed that the assessee had made claim for software expenses amounting to ₹ 11,25,785/-. It was further noticed that such an expenditure was incurred for different computer packages. After elaborate discussion, it was held to be a capital expenditure and only depreciation was allowed. The ld. CIT(A) allowed the claim on the basis of decision of Special Bench of Tribunal in the case of Amway India Enterprises vs. DCIT (2008) 21 SOT 1 (Del)(SB). 15. Before us, the ld. D.R. submitted that though the CIT(A) has mentioned about the decision of Special Bench in the case of Amway India Enterprises v. DCIT (supra), but expenditure incurred by the assessee has not been tested on the parameters given by the Special Bench. She further submitted that the assessee had incurred major expenditure for purchasing Auto Cad and MS Office which cannot be considered as only supplements of the software. 16. On the other hand, the ld. counsel of the assessee submitted that the software purchased by the assessee was definitely covered as revenue expenditure by the decision of Special ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed the interest. 21. Before the ld. CIT(A), it was submitted that investments were made as part of the business towards furtherance of business activities of the assessee company, for which reliance was placed on the decision of Hon ble Supreme Court in the case of S.A. Builders Ltd. vs. CIT (288 ITR 1). The ld. CIT(A) did not accept the submissions and decided the issue against the assessee vide para-5 of his order, which is as under : 5. I have carefully considered the above fact. It is noticed from the profit and loss account that during the year under consideration, the appellant has o income from business activities, rather only income credited is mainly on account of dividend. On the debit side, on the other hand, there is no expenditure on personnel, project expenses etc. which once again confirm the fact hat no business activity was carried on by the appellant. In such a situation, it can be safely concluded that the interest debited to the accounts is having no nexus with the business and it not allowable under section 36(1)(iii) of the Act. Since the interest is directly attributable to dividend which is exempt from tax, entire interest is liable to be dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sanctioned by the Hon ble Bombay High Court, the assets of infrastructure and realty business were demerged and given to Gesco Corporation Ltd. After this, the assessee is not left with any business. The other assets represent only investments in shares and therefore interest cannot be allowed u/s.36(1)(iii). Merely because the interest on debentures and ICD was assessed in the earlier year s business income, that will not make any difference. In fact, the ld. CIT(A) has only followed the decision of the Tribunal in the case of Kankhal Investments Trading Co.P. Ltd. vs. ACIT 301 ITR (AT) 359. In this case, it was observed as under : The assessee claimed deduction of interest on borrowed capital under section 36 of the income-tax Act, 1961, for the assessment years 1998-99 and 1999-2000. In the course of the assessment proceedings, it was found by the Assessing Officer that shares were not purchased as stock-in-trade but as long term investments and the income arising from sale of shares was being offered under the head Capital gains . Thus, the contention of the assessee that borrowed funds were utilized for business purposes was rejected. Further, no such cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the circumstances under which such advances were written off, the AO disallowed the claim. 25. Before the ld. CIT(A), it was mainly submitted that the assessee had placed certain inter-corporate deposits with various companies and subscribed to some debentures. Since interest was never received and the financial position of such companies had become bad, the amount was written off. The ld. CIT(A) decided the issue vide para-8, which is as under : 8. On careful consideration of the above facts, I do not find any infirmity in the conclusion drawn by the AO. The appellant itself is not sure under which provision of the Act such advances could be allowed as deduction. In so far as deduction u/s.37 is concerned, it is rightly pointed out by the AO that onus lies on the assessee to prove that the expenditure was incurred wholly and exclusively for the purposes of business. The appellant has not been able to retort to the specific requirements of the AO made in this regard. Even during appeal proceedings, merely names of a few companies have been submitted with respective amounts of loans/advances and interest written off unilaterally. There is no evidence that such companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O. 29. In the result, he appeal is partly allowed for statistical purposes. ITA No.1258/Mum/2010 : 30. In this appeal, the assessee has raised the following grounds : On the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming the action of the learned AO in rejecting the claim of the appellant for deduction of technical fees of ₹ 22,82,663 either as a business expenditure or a business loss allowable in the year under appeal. The learned CIT(A) failed to appreciate the fact that the claim for deduction of the amount in question was made by the appellant during the course of the assessment proceedings of the year under appeal only for the reason that the claim was rejected by the AO in assessment proceedings for AY 2000-01 when it was made in the first place and was therefore without prejudice to the contention of the appellant that it was allowable in AY 2000-01. 31. After hearing both the parties, we find that during the year the assessee has made a claim for payment of technical fees amounting to ₹ 22,82,663/- which was not allowed in the assessment year 2000-01 and that is why the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urn filed u/s.139(5) of the Act. Therefore, the said deduction is otherwise also not allowable in view of the decision of Hon ble Supreme Court in Goetze (India) Ld. vs. CIT (2006) 284 ITR 323 (SC) in which it has been held that with regard to the deduction claimed after filing of the return, the AO has no power to entertain claim made otherwise than by way of revised return. Accordingly, the action of the AO is upheld. 33. Before us, the ld. counsel of the assessee reiterated the submissions made before the CIT(A). He also submitted that the decision of Hon ble Supreme Court in the case of Goetze (I) Ltd. vs. CIT (284 ITR 323) is not applicable because the Mumbai Bench of Tribunal has already held in the case of Nathpal Jhakri Joint Venture vs. ACIT (37 SOT 160) that a relief cannot be denied merely on technical grounds. On a query by the Bench, he fairly admitted that appeal is pending for asstt. year 2000-01 and also that no revised return was filed for making this claim. 34. On the other hand, the ld. D.R. strongly supported the order of CIT(A). 35. We have considered the rival submissions carefully. The decision of Hon ble Supreme Court in the case of Goetze ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led, then, since the AO has no such power, such claim has to be rejected. That is why the claim of assessee was rejected in the case of Goetze (India) Ltd. also. In the case of Nathpal Jhakri Joint Venture, the issue was that the assessee had claimed certain expenditure on construction of temporary structure, out of which 95% of the expenditure was allowed and 5% was not allowed because the project was complete only upto 95%. The claim for balance amount was made in later years without revising the return. Before the Tribunal, the decision of Hon ble Supreme Court in the case of Goetze (India) Ltd. was cited and the Tribunal observed that We find that the reliance of the Revenue on this judgment is partly correct . But, however, later on, it was observed that relief could not be denied merely on technicalities. It seems, the Tribunal has not noted the portion of the order of Hon ble Supreme Court which has been highlighted by us. It has been clearly observed by the Hon ble Supreme Court that the powers of Tribunal will not be affected when the Tribunal is entertaining the claim for the first time a point of law. Therefore, when the claim was made before the AO without revising the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... waived on the basis of interim assessment of financial condition of MCCL. The ld. CIT(A) confirmed the addition by observing that there was no evidence to show that the financial condition of MCCL was poor. 39. Before us, the ld. counsel of the assessee reiterated the submissions made before the lower authorities and emphasized that interest was waived mainly on the interim assessment of financial position of MCCL. 40. On the other hand, the ld. D.R. supported the orders of AO and CIT(A). 41. After considering the rival submissions, we find that no evidence was produced before lower authorities to prove that the financial position of MCCL has really become bad. It is very strange that advance given in the same year has been treated as doubtful. However, in the interest of justice, we set aside the order of ld. CIT(A) and remit the matter back to the file of AO for re-examination as the ld. counsel of the assessee has submitted that opportunity to produce evidence regarding poor financial health of MCCL was not given. The assessee is directed to produce evidence and the AO is directed to provide adequate opportunity to the assessee and then decide the issue in accordance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, depreciation @ 25% as admitted by the ld. counsel of the assessee should be given in the year under consideration as well as in future yeas. Issue No. (3): 47. After hearing both the parties, we find that the assessee had claimed towards reduction of premium on redemption of debentures amounting to ₹ 10,00,000/-. In the year 2000, the assessee had subscribed to 10,00,000 unsecured optional convertible debentures of Mahindra Holidays Resorts India Ltd.. These debentures were redeemable at the end of 5 years and there was an option for early redemption. On 03-04-2002, these debentures were prematurely redeemed at a premium of ₹ 50,00,000/-. The resultant premium of ₹ 50,00,000/- was offered and brought to tax in asstt. year 2003-04. However, in the accounts, proportionate amount of ₹ 10,00,000/- was shown in the assessment year under consideration and that is why the same was sought as a deduction. The AO as well as the CIT(A) rejected the claim. 48. Both the parties were heard. After considering the rival submissions, we set aside the order of CIT(A) and remit the matter to the file of AO with a direction to verify if the whole amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y observing that if stock of the assessee gets destroyed, then, instead of receiving sale consideration, if the assessee has received insurance claim, that would also amount to sale proceeds only and therefore this case cannot be taken as precedent for service charge. In the case of CIT v. K.K. Doshi (supra), it was clearly observed that amount collected as service charges, which had no nexus with export activity, could not be taken into account for calculating deduction u/s.80HHC. In any case, the Hon ble Bombay High Court recently considered various decisions for exclusion of various items under clause (baa) in the case of CIT v. Dresser Rand India P. Ltd. and it was observed as under : Sub-section (1) of section 80HHC of the Income-tax Act, 1961, contemplates a deduction to an assessee being an Indian company or a person resident in India and engaged in the business of export out of India of any goods or merchandise to which the section applies. The deduction is to be allowed in computing the total income of the assessee to the extent of profits referred to in subsection (1B) derived by the assessee from the export of such goods or merchandise. Clause (a) of sub-section ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be excluded in the computation of business profits in order to prevent a distortion in the computation of the deduction under section 80HHC. What provision should be made consistent with the legislative policy underlying section 80HHC is a matter for Parliament to determine. The duty of the court is to interpret the language of the provision. The interpretation of the provision by the Supreme Court is binding and has to be followed . and then held as under : Held accordingly, that 90 per cent. of recovery of freight, insurance and packing receipts amounting to ₹ 49,14,076, sales tax set off/refund amounting to ₹ 38,33,148 and service income ofRs.2,89,17,545 had to be excluded for the purpose of computation of special deduction under section 80HHC . Therefore, following the above decision, we hold that CIT(A) has correctly held that the amount received on account of service charges has to be excluded from business profits for the purpose of computing deduction u/s.80HHC. 53. In the result, the assessee s appeal is partly allowed for statistical purposes. ITA No.1260/Mum/2010: 53. In this appeal, the assessee has raised the following two ..... X X X X Extracts X X X X X X X X Extracts X X X X
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