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Transport Corporation of India Ltd. Versus Asst. Commissioner of Income-tax, Circle – 2 (2) , Hyderabad.

2016 (11) TMI 245 - ITAT HYDERABAD

Disallowance u/ 14A - Held that:- As per section 14A, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income, which is exempt from tax. The relevance is the expenditure in relation to income. The quantification has to be undertaken in relation to the exempt income. The investment which has not generated exempt income should be excluded from the calculation of ratio to determine the disallowance. - Similarly, for the administrative expenses, 0.5 .....

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nd since, Mr. Sharma does not have any PAN, at the rate of 20% was deducted and credited in the central govt. account - Held that:- The genuineness of the transaction should be provided beyond doubt. There has to be live link with the business of the assessee and the expenditure incurred, the assessee should also be in a position to prove the expenditure with proper records beyond doubt. The assessee has submitted before us the details of commission payment (Refer page 37 of the paper book). Fro .....

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S. Accordingly, we are bound to accept the findings of the DRP and hence, ground raised by the assessee is rejected. - Disallowance of share expenses - claim maid u/s 35D - Held that:- The term public issue has wider meaning. It cannot be restricted to issue of shares/debentures to retail investors, it also applied to institutional investors. Even to issue shares to institutional investors, it involves expenditure. It has to be treated similar to the expenses incurred on issue of shares to .....

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ompany has not allocated any share of head office expenditure to this division. The allocation of expenditure to the various divisions is subjective matter, it involves various factors like the involvement of management time, personnel etc. These informations are not available on the record. We have noticed from the financial statement of the shipping division that no management personnel expenditures or management related expenses were debited to P & L A/c. It is a fact that management time and .....

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expenditure by the AO in the first place. We direct the assessee also to submit the relevant details of expenditure and extent of management involvement in running of this division. In the result, this ground of assessee is allowed for statistical purposes. - Disallowance of Employees Stock Option Expenses - Held that:- The revenue authorities denied the deduction of ₹ 60,48,569/- towards ESOP expenses because of the revised return not being filed by the assessee. However, the assesse .....

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- DELHI HIGH COURT ] we remit the issue to the file of the AO to accept the letter filed by the assessee for claiming the ESOP expenses and decide the issue in accordance with law after providing reasonable opportunity of hearing to the assessee. Accordingly, this ground is allowed for statistical purposes. - ITA No. 117/Hyd/2016 - Dated:- 21-9-2016 - SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER For The Assessee : Shri Y. Ratnakar For The Revenue : Shri V. S .....

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I-A deduction of ₹ 77,21,200/-. The return was revised by the assessee on 22/03/2013 wherein the income has been revised to ₹ 66,11,39,219/- after claiming Chapter VI-A deduction of ₹ 1,45,00,505/-. Subsequently the case was selected for scrutiny under CASS. The assessee furnished the information called for from time to time against the issuance of statutory notices u/s 143(2) and 142(1) of the Act. 2.1 During the scrutiny proceedings, it was noticed that the assessee has enter .....

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. The above mentioned draft order was served on the assessee on 30.03.2015. Aggrieved by the additions made in the draft assessment order dtd: 30.03.2015, the assessee filed objections before the Dispute Resolution Panel on 27.04.2015. The DRP issued directions u/s. 144C(5) of the Act vide its order dtd: 09.12.2015 which was received by the AO on 15/12/2015. Accordingly the assessment incorporating the directions of the DRP is completed as provided u/ s. 144C(13) of the Income Tax, 1961 by makin .....

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sing ALP on Loan advanced to subsidiaries and JV to ₹ 21,23,380/-. In the draft assessment order, as per the revised adjustment proposed, ₹ 21,23,380/ - was added to the assessee s total income. The assessee filed objection before the DRP, who confirmed the said ALP adjustment of ₹ 21,23,380/-. 4. Aggrieved, the assessee is in appeal before us. 5. Before us, the AR of the assessee submitted that the amounts advanced are from out of interest free funds of assessee, hence, calcul .....

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ricted to LIBOR rate only. If interest is to be calculated at LIBOR rate, the interest amount works out to ₹ 1,44,114/-. If the same is calculated at LIBOR rate + 2% the interest amount works out to ₹ 4,56,336/-. He relied on the following decisions in support of the LIBOR rate: 1. Micromax Informatics Ltd., Vs. DCIT, ITAT, Delhi Bench, [2015] 1545 ITD 156. 2. PMP Auto Components (P) Ltd., Vs. DCIT, [2014] 50 Taxmann.com 272 (Mum.). 3. Siva Ventures Ltd. Vs. ACIT, ITAT, Chennai Bench .....

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e will be inapplicable to India. He, therefore, submitted that the reasoning of DRP is irrational, absurd and perverse. 6. The ld. DR, on the other hand, relied on the orders of revenue authorities. 7. Considered the submissions of both the counsels and perused the material facts on record. The transaction under consideration is international transaction as the assessee lent money to its AEs. The economic activities happening in the international market is important rather than economic impact i .....

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urrency and accordingly recorded. But, how the AE had recorded. Obviously not in Indian currency. Since, actual utilisation of the funds were outside India, obviously, the ALP of this kind also to be determined applying the international market condition. Hence, we follow the consistent view of the various Tribunals, in particular, the case of PMP Auto Components (P) Ltd. Vs. DCIT [2014] 50 Taxmann.com 272 (Mum.) wherein the coordinate bench has held that the assessee is a tested party and econo .....

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D as under: a) Indirect interest expenditure ₹ 22,55,973 b) 0.5% of average value of exempt investment ₹ 7,10,286 ₹ 29,66,259 8.1 During the proceedings, it was noticed that the assessee made investments of ₹ 12,84,52,151/- the income from which is exempt from taxation. Therefore, the assessee was asked about why 14A disallowance not be made on the above said investments vide order sheet noting dated 23/11/2013. The AR submitted as under: As regards applicability of secti .....

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llowance of any part of investment in shares and therefore question of disallowance of any part of interest does not arise. A reference may be made in this connection to the Bombay High Court decision in CIT u. Reliance Utilities and Power Ltd. 313 ITR 340. Where own funds are greater than the investment in shares it should be presumed that investment have come out of own funds, It may also be noted that the amounts of investments has reduced during the year. The entire borrowings have been used .....

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employs borrowed funds for making investments which yield tax exempt income, provisions of section 14A are invokable. When there is a direct and proximate connection between the investments and borrowed funds, disallowance is warranted. The AO computed disallowance of expenditure under Rule 8D as under: A = 11,70,31,307 (Interest expenses not directly attributable to particular receipt) Description On last day of PY On first day of PY Average B= Exempt investments 12,84,52,151 15,56,62,151 14,2 .....

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The entire investment is made out of interest free funds. He submitted that the total investment in shares from which dividend received is ₹ 4,80,47,496 against own funds of ₹ 315.29 crores. The assessee company did not have to borrow any funds paying interest for making the investment. 9.1 Coming to the disallowance of 0.5%, ld. AR submitted that even if any disallowance is warranted it should be calculated on the value of investment' in respect of 'which income is received .....

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e contended that the calculation made by the AO at 0.5% on ₹ 14,20,57,151 at ₹ 7,10,286 is erroneous. He submitted that the AO erred in making the disallowance straight away by applying rule 8D of the IT Rules without considering the correctness of the claim made by the assessee that no expenditure was incurred in relation to the exempt income. 9.3 The ld. AR contended that there is no proximate cause for the disallowance in relation to the tax exempt income. Section 14A of the I.T A .....

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that is in contemplation u/s 14A(1) of the Act is the 'actual' expenditure in relation to or in connection with or pertaining to exempt income. The corollary to this is that if no expenditure is incurred in relation to the exempt income, no disallowance can be made u/s 14A of the Act. Kind attention is invited to the decision of the Delhi High Court in Maxopp Investment Ltd. Vs. CIT reported in 347 ITR 272. 9.5 He relied on the following case laws: 1. CIT Vs. Metalman Auto Pvt. Ltd. (201 .....

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ke investment. He also relied on various decisions, in particular, Reliance Utilities & Power Ltd. (supra). We cannot take this argument further because there exist interest bearing funds and it is difficult to identify the utilization of the funds in the business unless the assessee brings proper records to show that the specific interest free funds were utilized to acquire the investment which are exempt from tax. In the present case, it is difficult to identify the funds utilization consi .....

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he average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; C = the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; In particular, the notes for B clearly states that the average value of investment, income from which does not or shall not form part of the total i .....

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allowed in respect of expenditure incurred by the assessee in relation to income, which is exempt from tax. The relevance is the expenditure in relation to income. The quantification has to be undertaken in relation to the exempt income. The investment which has not generated exempt income should be excluded from the calculation of ratio to determine the disallowance. 11.2 Similarly, for the administrative expenses, 0.5% of average investments from which the exempt income is received should be c .....

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ards Commission. In this regard, the AR of the assessee was asked to produce the details of commission paid. The AR of the assessee produced the details of commission payments vide his letter dated 23/10/2013. 12.1 During the scrutiny proceedings of the assessee's own case for the A.Y. 2010-11, the then Assessing Officer, tracked the commission paid to Mr. CP. Sharma. Even insisted, the AR of the assessee, to produce Mr. CP Sharma in person before the Assessing Officer, the same was not done .....

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Mr CP. Sharma did not carry out any work for the assessee and the payments through Bank might be for the purpose of providing accommodation entries to the assessee. Merely because, payment is made through cheque, the payment cannot be accepted as genuine. Payment through bank is mandatory as otherwise, the assessee would be legally ineligible for making claim of expenditure. However, in any accommodation transaction there could be repayment of the amounts received through cheques for a minor con .....

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of the AO. 14. Before us, the ld. AR of the assessee submitted that a sum of ₹ 36,25,927 is paid as commission to one Mr. Chandra Prakash Sharma(C.P.Sharma). This commission payment is a genuine payment incurred for business purposes and it is paid under several crossed account payee cheques. The commission is paid for the business procured by Mr.C.P.Sharma aggregating to ₹ 2,37,67,219 during the financial year 2010-11. This business was done at the XPS Division of Meerut and Baddi b .....

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l. II) 14.1 The ld. AR submitted that Mr. C.P. Sharma does not have P.A. Number. Hence in respect of payments made TDS is deducted at the rate as applicable. He submitted that the assessee company filed TDS statements giving the details of deduction of tax at source. Mr. Sharma is not an employee of the assessee company. He has enough contacts to bring the business which the assessee company utilized. The payment of commission is a normal trade practice in this line of business and every transpo .....

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More over his services were discontinued in the later years. Without issue of summons Mr.C.P.Sharma would not appear before the Assessing officer and no summons were issued during the assessment year. No attempt was made to examine him on commission at Meerut (Place of residence of Mr. C.P.Sharma). 14.3 The ld. AR submitted that on the basis of the above facts the assessee discharged its burden of proof in establishing the identity of payee, the reason for making the payment and proof of payment .....

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the account of Shri C.P. Sharma and since, Mr. Sharma does not have any PAN, at the rate of 20% was deducted and credited in the central govt. account. Even though proper procedure is followed and proved the genuineness of the expenditure, at the same time, based on the directions of revenue authorities, assessee failed to produce Shri C.P. Sharma and no proper reasons were submitted. In our opinion, the genuineness of the transaction should be provided beyond doubt. There has to be live link wi .....

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raise eye brows. The assessee has to prove that such persons exists and why he does not have PAN even though having high value transaction. Unless assessee proves the genuineness of existence of such person, it cannot be held as genuine merely because it paid relevant TDS. Accordingly, we are bound to accept the findings of the DRP and hence, ground raised by the assessee is rejected. 17. As regards disallowance of share expenses of ₹ 17,76,884/- (Ground Nos. 13 & 14), during the proc .....

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cription, of shares". Merely because, an incorrect claim was accepted in an earlier year, the claim would not be validated. Therefore, the claim u/s 35D is not allowed by the AO. 18. Aggrieved by the above disallowance, the assessee filed objection before the DRP which in turn rejected this objection with the observation that it find no reason to interfere with the order of the A.O. 19. Before us, the ld. AR submitted that the assessee incurred a sum of ₹ 88,69,418 towards share issue .....

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res were offered through merchant bankers to several institutional investors. The offer was accepted by a company called FID Funds (Mauritius) and the shares were allotted to it. It is submitted that FID Funds(Mauritius) is a qualified institutional buyer. The qualified institutional buyers are classified as investors and form part of large institutional investors community. These institutional buyers normally interact with the merchant bankers and based on the recommendations and feedback from .....

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decision dated 30-1- 2015 in the case of D.C.I.T Vs. Deccan Chronicle Holdings Ltd. [2015] 60 taxmann.com 240 (Hyd.) at para -7 held that the word 'public issue' also will take in its sweep investment by qualified institutional buyers. Relying on the said decision, the ld. AR submitted that the sum of ₹ 17,70,884/- is an allowable deduction u/s 35D(2)(c)(iv) of the I.T. Act. 20. Considered the submissions of both the counsels and perused the material facts on record. Similar issue .....

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owever, the expenditure being deferred revenue expenditure falls within the ambit of section 35D r.w.s. 37 of the I.T. Act which is eligible to be charted to Profit and Loss A/c. Accordingly as per the provisions of section 35D of the I.T. Act, 1/5th of the QIB issue expenditure i.e. ₹ 207.00 lakhs was written off. Qualified Institutional Buyers (QIBs) are a class of investors as a part of the large investor community and the companies sought for QIB issues because the funds can be raised .....

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the I.T. Act is confirmed. Hence on merits of the issue as well as the fact that the same issue has been allowed in the earlier years and the Department cannot came upon in appeals in the subsequent years would be the reason to dismiss the Departmental appeal. We confirm the order of CIT(A) with respect to Qualified Institutional Buyers expenses and dismiss the departmental appeal on this issue. In the result, the departmental appeal for the AY 2007-08 and 2008-09 are dismissed. From the above d .....

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g to the shipping division of ₹ 59,95,071/- (grounds No. 15 to 18), the AO noticed that common costs of corporate office are apportioned to all divisions except Seaways division under the plea that the division is independently managed. This argument is devoid of merit. Other divisions also have functional autonomy. The Chairman, MD, other directors and their staff as well as the corporate office staff including taxation staff work for all divisions. Therefore, expenditure of corporate off .....

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ld. AR submitted that assessee owns a shipping division. In respect of the shipping division, the assessee opted to be assessed under the Tonnage Tax Scheme falling under Chapter XIIG of the I.T Act. The income to be computed for the shipping division should be in accordance with the provisions of section 115VG of the I.T Act as the appellant opted to be assessed under Chapter XIIG of the I.T Act. He submitted that the assessee maintains separate books of accounts for this division. The accounts .....

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e excluded. 23.1 Ld. AR submitted that the assessee has included all expenses pertaining to the shipping division in the accounts separately maintained for the shipping division and arrived at the income/loss of the said division in accordance with the accounts maintained. This is done to ensure that the account of other divisions is not effected due to inclusion of shipping division s business income or expenditure. 23.2 He submitted that according to the Assessing Officer, the administrative e .....

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arrived at a notional allocation of the expenses to the shipping division at ₹ 59,95,071. 23.3 The Assessing Officer disallowed this amount while computing the income from the remaining divisions on the plea that the said expenses should be considered as expenses pertaining to the shipping. division and since the shipping division income has to be computed under the provisions of section 115VG of the I.T Act, the said expenditure of ₹ 59,95,071 should not be allowed as expenditure w .....

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iture has not been included. No indication is available as to how the total administrative expenses are computed at ₹ 15,17,86,877. The entire exercise is based on the premise that some expenses pertaining to the shipping, division has not been allocated to the shipping division income accounting. This is an incorrect assumption. He submittd that even the calculation of administrative expenses at ₹ 15,17,86,877 appears to be incorrect. Therefore, the computation of administrative exp .....

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ounsels and perused the material facts on record.AO has disallowed % of share of Head Office expenditure relating to the shipping division. From the record, it is clear that the direct expenditures relating to shipping divisions are recorded in their books properly, but, the management of the company has not allocated any share of head office expenditure to this division. The allocation of expenditure to the various divisions is subjective matter, it involves various factors like the involvement .....

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n absence of such information and for the sake of clarity and justice, we find it appropriate to remit this issue to the file of the AO to determine the share of head office expenditure for this division as the assessee also not clear with the quantum of expenditure adopted to allocate the share of expenditure by the AO in the first place. We direct the assessee also to submit the relevant details of expenditure and extent of management involvement in running of this division. In the result, thi .....

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assessee vide letter dtd: 18/03/2015 without filing a revised return of income. 26.1 The DRP held that the objection of the assessee is not acceptable for the reason that the ratio held by the Hon'ble Orissa High Court in the case of Orissa Rural Housing Development Corporation Ltd vs. ACIT in W.P. (C) No. 4554 of 2011 is squarely applicable to the case of the assessee. The DRP further placed reliance on the ratio held by the Hon'ble Supreme Court in the case of Goetze (India) Ltd and a .....

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me for the assessment year 2011-12 the appellant erroneously added back a sum of ₹ 60,48,569 being deferred employees compensation under the employees stock option scheme (ESOP). There was some controversy in the past relating to the allowance of ESOP expenses as allowable deduction in the year of issue. This controversy was set at rest by the Special Bench decision in ITA No.368/B/2010 dt.16-7-2013 in the case of Bycon Ltd. Vs. D.C.I.T. A copy of the order is available at pages 103 to 152 .....

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'e' at page 215 of Vol. 1). He submitted that the ESOP expenses are allowed from the assessment year 2012-13 onwards without any dispute as claimed by the appellant. For the assessment year 2011-12 the above amount was not allowed by the Assessing Officer on the plea that such claim can only be made through a revised return and not by way of a letter. When the issue was objected to before the Dispute Resolution Panel, the Dispute Resolution Panel referred to the judgment of the Orissa Hi .....

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s aspect of the matter has been set out by the Hon'ble Supreme Court in Goetze's (India) Ltd. Vs. D.C.I.T case itself. Subsequently a spate of judgments of various courts have been delivered to the effect that the decision of the Hon'ble Supreme Court in Goetze's case has no application before the appellate authorities. Kind attention is invited to the latest judgment of the Hon'ble Delhi High Court in Principal C.IT Vs. Western India Shipyard Ltd. reported in 379 ITR 289. Th .....

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