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2016 (11) TMI 1302 - ITAT MUMBAI

2016 (11) TMI 1302 - ITAT MUMBAI - TMI - Validity of assessment u/s 144C - Held that:- the claim of the assessee company that as the insertion of Sec. 144C had created new rights and obligations, not only in favour of assessee, but also in favour of DRP and concerned assessing officer, therefore by implication the said statutory provision would partake the color and character as that of a 'Substantive provision', is not found to be acceptable and is hereby rejected. - In the case of the asse .....

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est computed @14% p.a w.r.t the aforesaid amount in the hands of the assessee company - Held that:- We herein set aside the order of the Ld. CIT(A), to the extent the latter had upheld the order of the A.0 treating remittances to the extent of US $ 6,60,000/- by the assessee company to its 'AE', i.e M/s Taurian CISA at Abdidjan Ivory Coast of South Africa (the 'WOS' of the assessee company) towards 'Share application' money, as loans and advances, and on the said basis had thus sustained the con .....

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ed receipt of the payments by the assessee company from its aforesaid WOS/AE. - Disallowance of 'lease rentals' - whether the 'lease transaction' executed by the assessee company was a Finance lease' and not an 'Operating lease'? - Held that:- We herein set aside the order of the Ld. CIT(A) to the extent the latter had upheld the order of the A.0 who despite holding the lease transaction as that being in the nature as that of a 'Finance lease', had however declined to allow the claim of the .....

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tled as per Sec. 32(1) of the 'Act' r.w the Income tax rules and allow depreciation in the hands of the assessee company. - Disallowance of difference in value of the forward contracts as on the date on which contract was entered into and the rate prevailing as at the end of the financial year, on the ground that the same represents notional loss - Held that:- As before us it was at the very outset submitted by the Ld. A.R for the assessee company that as the A.0 vide his assessment order da .....

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r consideration, the said ground of appeal is dismissed as not pressed by the assessee company. - Levy of Interest u/s 234A, 234B and 234C is mandatory, automatic and consequential, no infirmity can be attributed to the general observation of the CIT(A) therein directing the A.0 to levy interest at the time of giving appeal effect to his order - ITA No.5920/Mum/2012 - Dated:- 16-9-2016 - SHRI R.C.SHARMA, AM AND SHRI AMIT SHUKLA, JM For The Assessee : Shri K.B.Desai For The Revenue : Shri N.K .....

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i ("the AO") of passing the assessment order u/s 143(3) of the Act beyond the limitation prescribed under the Act. 2. The Appellant prays that the action of the lower authorities be deleted by holding that : (i) the assessment order is passed beyond the limitation period specified under the Act and as such is illegal, invalid, bad in law and be quashed; and (ii) the order passed by the Transfer Pricing Officer ("TPO') be treated as illegal, invalid, bad in law and be quashed. .....

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that the reference to TPO as also the order pursuant to such reference be treated as invalid, illegal and bad in law and be quashed. Without prejudice to above grounds: Ground No. 3 : Non compliance with the instruction issued by the Central Board of Direct Taxes ("CBDT"): 1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in confirming the action of the AO of referring the Appellant's case to TPO for determination of Arms-Length price ("ALP' .....

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) towards share application money as loans and advances on the ground that there was delay in allotment of shares by such AE. 2. The Appellant prays that the action of the lower authorities be deleted and the transaction be treated as on account of share application money which is not subject to any interest income. Without prejudice to above 3. If at all the action of the lower authorities is upheld then, in that case, only the funds against which no shares have been allotted to the appellant b .....

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upheld then, in that case, interest be calculated only on the amount refunded by the AE against which no shares have been allotted to the appellant. Ground No.6: Disallowance of lease rentals : ₹ 9,70,34,749/-: I. On the facts and in the circumstances of the ease and in law, the CIT(A) erred in confirming the action of the AO of disallowing lease rentals on the ground that the lease transaction executed by the appellant is a finance lease transaction and not operating lease transaction. 2. .....

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act- ₹ 2,62,65,930/-. 1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in confirming the action of the A. 0 of disallowing ₹ 2,62,65,9301- being the difference in value of the forward contracts as on the date on which the contract was entered into and the rate prevailing as at the end of the financial year, on the ground that the same represents notional loss. 2. The Appellant prays that the action of the lower authorities be deleted. Without prejudic .....

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n of the lower authorities be deleted. Ground No. 9: Disallowance u/s 14A- ₹ 14,495/- 1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in confirming the action of the AO of disallowing expenses of ₹ 14,495/- u/s 14A of the Act r.w rule 8D of the Income-tax Rules, 1962 ("the Rules') on the assumption that the Appellant must have incurred some expenses for making investments earning tax free income. 2. The Appellant prays that the disallowance .....

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der otherwise it would result in double disallowance i.e firstly, disallowance made in return of income and secondly, disallowance made in the assessment order. 5. Without prejudice to above, if at all the action of the lower authorities is upheld then, in that case, the disallowance either be allowed to be capitalised or be allowed to be deducted from sale consideration in the year of transfer of securities. Ground No. 10: Levi' of interest u/ss. 234B and 234C: 1. On the facts and in the ci .....

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ssessee company both in the domestic and international market. The assessee company had e-filed its 'Return of income' on 29.09.2008, declaring income of ₹ 23,66,78,000/-, which was processed as such u/s 143(1) of the Income tax act, 1961 (hereinafter referred to as the 'Ace). The case of the assessee company was taken up for scrutiny proceedings and Notices u/ss. 143(2) and 142(1) of the 'Act' were served on the assessee company. During the course of the assessment pro .....

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s 92CA(1) of the 'Act', who vide his order passed u/s 92CA(3) of the 'Act', dt. 15.03.2011, proposed adjustments of ₹ 16,56,556/- as regards the aforesaid International transactions of the assessee company. The A.O following the order of the 'TPO' and carrying out adjustments as regards the International transactions of the assessee company with its 'AE', alongwith certain other additions to the 'returned income' of the assessee company, therein as r .....

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mplete the assessment and pass the final assessment order, pursuant whereto the A.O proceeded with and framed the assessment U/s 143(3) of the 'Act' as on 19.01.2012 and assessed the income of the assessee company at an amount of ₹ 39,24,44,130/-, as under:- Particulars Amount (A).Profits and Gains from business and profession (as per computation of income) ADD: Disallowances: (i).Adjustment u/s.92CA(3) Rs.16,56,556/- (ii) Lease Rent on Railways wagons Rs.9,70,34,749/- (iii) Puniti .....

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the period of limitation contemplated under Sec. 153(1) of the 'Act', therefore the same was non est in the eyes of law and thus could not be sustained as such. The Ld. A.R fortifying his contention that the assessment framed by the A.0 u/s 143(3) of the 'Act' was time barred, therein referred to the Second proviso of Sec. 153(1) of the 'Act' and averred that though the A.0 remained under a statutory obligation to frame assessment in the hands of the assessee company with .....

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ded that the assessment framed by the A.0 was well within the period of limitation, therein submitted that the Ld. CIT(A) while observing that on perusal of Sec. 153 r.w 144C of the 'Act', the assessment framed by the A.0 was found to be well within the period of limitation, had gravely erred in loosing sight of the fact that as Sec. 144C was in itself made available on the statute vide the 'Finance Act, 2012, w.r.e.f 01.04.2009, therefore the same was to be made applicable for A.Y. .....

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eding years, therein culling out the changes brought in by Sec. 144C of the 'Act', submitted that as the same had changed the law of filing the appeal and has also created new rights and obligations, not only in favour of assessee but also in favour of DRP and concerned assessing officer, therefore by implication the provisions of Sec. 144C would partake the color and character as that of 'Substantive provisions', and resultantly the same would be applicable prospectively from A. .....

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ive rights is presumed to be prospective in operation unless made retrospective, either expressly or by necessary intendment, whereas a statute which merely affects procedure, unless such a construction is textually impossible, is presumed to be retrospective in its application, should not be given an extended meaning and should be strictly confined to its clearly defined limits. (ii). Law relating to forum and limitation is procedural in nature, whereas law relating to right of action and right .....

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d to be prospective in operation, unless otherwise provided, either expressly or by necessary implication" 4. Thus the Ld. A.R taking support of the aforesaid judgment of the Hon'ble Apex Court, therein submitted that as Sec. 144C which was made available on the statute vide the 'Finance Act, 2012, w.r.e.f 01.04.2009, though may at first blush appear to be procedural in nature, as the same provides for the procedure to be followed by the A.0 and the assessee in the course of the ass .....

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e applicable to the year under consideration in the case of the assessee company. 5. The Ld. A.R further to drive home his contention that while for procedural provisions are applicable both to future as well as pending proceedings, while for amendments to substantive provisions can only be given a prospective effect, therein in support of the aforesaid proposition, relied on a host of Judgments, as under: (i). Jai Parkash Singh Vs. (219 ITR 737)(SC) (ii). KM Sharma Vs. ITO (254 ITR 772, 779)(SC .....

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Chand Jain Vs. Dugi Lal Pindi Lal & Ors (95 ITR 34)(Del). (xiii). CIT Vs. Roshanlal Kathilal (87 ITR 714)(P&H) (xiv). Sedco Forex International Drill Inc and Ors. Vs. CIT (279 ITR 310) Still further, the Ld. A.R in order to support his contention that as the provisions of Sec. 144C had been made available on the statute w.e.f 01.10.2009, thus the same can be made applicable only w.r.t A.Y. 2010-11 and subsequent assessment years, relied on the judgment of the Hon'ble Bombay High Cou .....

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vailable on the statute, therein further fortified his contention that the provisions of Sec. 144C could not be made applicable to years prior to A.Y. 2010-11, and as such the A.0 had erred in extending the same to the case of the present assessee company. 6. That during the course of hearing of the appeal, the Ld. A.R further supporting his contention that the provisions of Sec. 144C were applicable w.e.f A.Y. 2010-11, therein drew the attention of the bench to CBDT Circular No. 5 of 2010; date .....

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eyond any scope of doubt that the provisions of Sec. 144C were made available on the statute w.e.f A.Y. 2010-11, and thus could not be made applicable to the year under consideration in the case of the assessee company. The Ld. A.R further submitted that in light of the settled position of law that CBDT Circulars are binding on the Revenue/department, the A.0 in the case of the assessee company had thus grossly erred in adopting a view contrary to the CBDT Circular, and as such erred in extendin .....

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ITR 149)(Cal). (iii). CIT Vs. 0.M.S.S. Sankaralinga Nadar & Co. (147 ITR 332)(Mad). (iv). Charitable Gadodia Swadeshi Stores Vs. CIT (12 ITR 385)(Lahore) (v). CIT Vs. Raja Bahadur Kamakhaya Narayan Singh (16 ITR 325) (Privy council). (vi). Beohar Singh Raghubir Singh Vs. CIT (16 ITR 433)(Nag). (vii). Comm. Of Agri. Income tax Vs.Raja Jagdish Chandra Dhabal (171TR 426)(Cal). (viii). S.D Sharma Vs. CIT (45 ITR 107 )(Mah). (ix). Delhi Flour Mills Co. Ltd. Vs. CIT (95 ITR 151)(Del). (x). A.L.A F .....

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ix). Dhiren Chemicals (254 ITR 554) (xx). Navnitlal C. Jhaveri (56 ITR 198 at 203)(SC) (xxi). Ellerman Lines Ltd. Vs. CIT (82 ITR 913, at 920-21)(SC) , and thus submitted that as the A.O had erred in not following the CBDT Circular No. 5 (supra), therefore his action may be vacated. 8. The Ld. A.R further referring to another CBDT Circular No. 9; Pt. 19.11. 2013, wherein the anomaly as had crept in Para 45.5 of the Circular No. 5; Pt. 03.06.2010, as regards the date of applicability of the provi .....

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le at the time of passing of the assessment order, therefore the A.0 was bound by the Circular No. 5 (supra), which was in force as on the date of framing of the assessment in the hands of the assessee company. It was thus averred by the Ld. A.R that as the A.0 had erred in not following the binding Circular No. 5 (supra), , the same therein had led to surfacing of a view on his part which was glaringly found to be in conflict with the view adopted by the CBDT in its Circular No.5 (supra), as a .....

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tive from A.Y. 2010-11, and no interpretation howsoever meaningful it may so appear, can therein be permitted to substitute the plain and literal interpretation of the said statutory provision. 10. The Ld. D.R on the hand rebutting the aforesaid averments of the assessee company, relied on the order of the Ld. CIT(A) and submitted that the provisions of Sec. 144C which were made available on the statute vide the 'Finance (No. 2) Act, 2009, w.r.e.f 01.04.2009, were applicable as regards any o .....

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ein the anomaly as had crept in Para 45.5 of its earlier Circular No. 5; Pt. 03.06.2010, as regards the date of applicability of the provisions of Sec. 144C had been removed by the CBDT, therein making it clear beyond any scope of doubt that the 'Cut off date of October 1, 2009, as regards the applicability of the provisions of Sec. 144C of the 'Act' is to be construed and understood in context and reference of the date on which the A.O proposes to make an order as a consequence of t .....

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Sec. 144C of the 'Act' was to be made applicable only w.e.f A.Y. 2010-11. 11. We have considered the rival submissions of either side and perused the relevant materials on record, including the orders of the authorities below and are of the considered opinion that the genesis of the controversy as to whether the assessment framed by the A.O is within the period of limitation contemplated under the 'Act' or not, mainly revolves around the issue of the period of applicability of Se .....

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ee company, as provided u/s 144C(1) of the 'Act', and the assessee company vide its letter dt. 20.12.2011 (Page 121 of 'APB') intimated to the A.O that as the proposed additions/disallowances made in the 'draft order' were not acceptable to it and were to be challenged by way of filing of an appeal u/s 246A of the 'Act' before the CIT(A), therefore the final assessment order may be passed. We are of the considered view that though it is the settled position of law .....

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rospective in its application, however are convinced that the said proposition would not help the assessee company to support its contention that Sec. 144C being substantive in nature, therefore the same would be applicable prospectively w.e.f A.Y. 2010-11, because to our understanding Sec. 144C has only brought about a procedural amendment therein providing the tax payer an alternate dispute resolution mechanism, exercise of which too is optional at the end of the tax payer. Rather, as a matter .....

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cer, therefore by implication the said statutory provision would partake the color and character as that of a 'Substantive provision', is not found to be acceptable and is hereby rejected. 12. We have further carefully perused Sec. 144C(1),which is relevant for adjudication of the issue under consideration, and reads as under:- "144C(1). The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed .....

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nd in reference to the date on which the A.0 consequent to the order of the TPO u/s 92C(3) of the 'Act', proposes to make any variation in the income or loss returned, which is prejudicial to the interest of the assessee, independent of the assessment year involved therein. There is nothing provided for in the aforesaid statutory provision from where it could be gathered that the 'Cut off' date of 01.10.2009 is to be construed to mean that that the statutory provisions contemplat .....

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ion in the garb of giving it a better meaning and arriving at the underlying object behind the enactment, but are unable to persuade our self to interpret the scope and gamut of the period of applicability of Sec. 144C(1) of the 'Act' by divorcing the 'Cut off' date of 01.10.2009 from the text in which it has been used, and therein reading the same in isolation. We are of the considered opinion that as Sec. 144C which had been inserted vide the Finance (No. 2) Act, 2009, w.r.e.f .....

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eliance placed by the Ld. A.R on Para 45.5 of the CBDT Circular No. 5; Pt. 03.06.2010, to support his contention that the provisions of Sec. 144C were applicable w.e.f A.Y. 2010-11, we are of the considered view that without prejudice to the fact that that the CBDT Circulars are not binding on the appellate authorities, and as such are not binding on us, however even otherwise the fact as it so remains is that the anomaly in the CBDT Circular No. 5 ; Dt. 03.06.2010, Para 45.5 (supra), as regards .....

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drafting error is attempted to be taken by the assessee company to drive home its contention that the provisions of Sec. 144C were not applicable to A.Y. 2008-09 involved in its case, had thereafter been rectified by the CBDT vide its Circular No. 9; 19.11.2013, wherein the Para 45.5 had been substituted, and therein reads as under: "2. Explanatory Circulars for the Finance (No. 2) Act, 2009, i.e Circular No. 5 of 2010 ,dated. 03.062010, in Para 45 has explained the said new section 144C a .....

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re has been an inadvertent error in stating the applicability of the provisions of section 144C inserted vide Finance (No. 2) Act, 2009 that amendments will apply in relation to the assessment year 2010-11 and subsequent assessment years. Accordingly, para 45.5 is replaced with the following:- "45.5. Applicability - Section 144C has been inserted with effect from ist October, 2009. Accordingly, the Assessing Officer is required to forward a draft assessment order to the eligible assessee, i .....

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ted 3'd June, 2010, shall also apply from 1st October, 2009." 13. Thus in light of the fact that an inadvertent drafting error as had crept in Para 45.5 of Circular No. 5 ; Dt. 03.06.2010, therein wrongly stating that the provisions of section 144C inserted vide Finance (No. 2) Act, 2009 were in relation to the assessment year 2010-11 and subsequent assessment years, had in itself been taken cognizance of as being an 'Inadvertent mistake', and rectified by the CBDT by substituti .....

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act that the CBDT Circular No. 9; dt. 19.11.2013 (supra) was not before the A.0, however we cannot also loose sight of the fact that the said Circular No. 9 (supra) had only removed an 'Inadvertent mistake' as had crept in the body of the earlier Circular No. 5 (supra), and had not taken away or diluted any substantive right as was conferred or vested upon the assessee by the said earlier circular. We cannot be persuaded to arrive at a finding that a mistake should be allowed to perpetua .....

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rafting of the Circulars/Instructions and carry out thorough vetting of the same before putting up the same in the public domain. 14. Thus in light of our aforesaid observations, now when in the present case, the A.O on receipt of the order of the TPO u/s 92CA(3) of the 'Act', dated: 15.03.2011, had thereafter passed a 'draft assessment' order as on 28.11.2011 (i.e subsequent to the 'Cut off' date of 01.10.2009), therefore no infirmity as regards the applicability of the .....

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Ld. A.R of the assessee company had during the course of hearing of the appeal averred at length that as per the time limit contemplated in the Second proviso of Sec. 153(1) of the 'Act', the A.0 remained under a statutory obligation to frame assessment in the hands of the assessee company within a period of 33 months from the end of the relevant assessment year, i.e latest by 31.12.2011, however as the same was framed only as on 19.01.2012, therefore the same was barred by limitation an .....

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the assessee company was found to be within the parameters contemplated u/s 144C(4) of the 'Act', therefore no infirmity as regards the limitation for framing of the assessment was liable to be drawn. 15. We have considered the rival submissions of either side and perused the relevant materials on record, including the orders of the authorities below and are of the considered opinion that as the time period involved in framing of an assessment where the provisions of Sec. 144C are invoke .....

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#39; order, i.e within a period of 'One month' from the date of receipt of acceptance, in case the assessee had accepted the proposed variations, OR 'One month' from the expiry of the period stipulated for filing of objections, in case no objections are received by the A.O within the stipulated time period from the assessee; (iv). The 'DRP' in case of receipt of objections to the proposed variations from the assessee, shall within a period of 'Nine months' from th .....

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r. is thus found to be substantially more time consuming, pursuant whereto the legislature in all its wisdom had provided for a separate and distinct period of limitation for framing of assessments in cases where the provisions of Sec. 144C of the 'Act' had been invoked. In this regard it would be relevant to point out that the overriding and superseding effect of the 'time limits' for framing of assessments in the cases where the provisions of Sec. 144C of the 'Act' had .....

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ng anything contained in Sec. 153 [or Section 153B], pass the assessment order under sub-section (3) within one month from the end of the month in which- (a). the acceptance is received; or (b). the period of filing of objections under sub-section (2) expires. 16. Thus a bare perusal of Sec. 144C(4), which starts with the non obstante clause "The Assessing Officer shall, notwithstanding anything contained in Sec. 153 " and provides for an independent 'time limit' of 'One mo .....

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c. 153C shall not put any fetters to the framing of any such assessment, which as mentioned hereinabove is to be reckoned in light of the 'time limits' provided in Sec. 144C itself. In this regard it may further be pointed out that in a case where the assessee files objections to the variations proposed by the A.0, in that case the time limit' for framing of the assessment by the A.0, which too is independent of the 'time limit' contemplated u/s 153 of the 'Act', woul .....

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d clear position of law, wherein it stands inescapably gathered that in a case where the provisions of Sec. 144C had been invoked, there the 'time limitation' for framing of assessment shall be regulated by that as provided in Sec. 144C itself, thus now when in the case of the present assessee company, which on receipt of 'draft assessment' order, had therein intimated to the A.O that as the proposed additions/disallowances made in the draft order' were not acceptable to it, .....

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is reckoned as under:- Date Particulars 15.03.2011 Order of TPO u/s.92CA(3) proposing adjustments of ₹ 16,56,556/- 28.11.2011 Draft assessment order proposing additions forwarded to the assessee company, as required u/s.144C(1) of the Act. 28.12.2011 The assessee company was required to file its 'Objections' to the 'draft assessment' order of the A.O, as required u/s 144C(2) of the 'Act'. 31.01.2012 The A.O remained under a statutory obligation to frame assessment u .....

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9;Ground of appeal No. 1' of the assessee company is dismissed. GROUND OF APPEAL 2 & 3: 19. The Ld. A.R of the assessee company during the course of the hearing of the appeal had therein submitted that 'Ground of appeal No. 2' and 'Ground of appeal No. 3' are not being pressed, as a result whereof the same are dismissed as being not pressed. GROUND OF APPEAL 4 & 5:. 20. The Ld. A.R of the assessee company had assailed the order of the Ld. CIT(A) who had confirmed the .....

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s of the assessee company, which addition/adjustment in light of the RBI Master Circular No. 02/2007-08; dated. 01/07/2007, though had been directed by the Ld. CIT(A) to be worked out by adopting rate of interest as 6 months LIBOR plus 150 basis point for the period of delay involved in allotment of shares and receipt of the payments by the assessee company from its aforesaid WOS/AE. 21. That at the very outset it was submitted by the Ld. A.R that the assessee company had remitted an amount aggr .....

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ther submitted by the Ld. A.R that as against the aforesaid amount of US $ 8,60,000 (supra), an amount aggregating to US $ 2,00,000 was refunded by the 'WOS' as under :- Date USD INR 30.12.2009 US $ 1,00,000 ₹ 46,62,428/- 25.01.2010 US $ 1,00,000 ₹ 45,97,506/- Total US $ 2,00,000 ₹ 92,59,934/- , while for as against the balance amount of US $ 6,60,000, shares numbering 31,120 were allotted to the assessee company as on 10/12/2009. It was submitted by the Ld. A.R that th .....

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nded, thus the said remittance not being in the nature as that of a loan advanced to the WOS, therefore in view the color and character of the transaction, no adverse inference as regards the same were liable to be drawn in the hands of the assessee company. The Ld. A.R further submitted that the amount of 'Share application' money so remitted to the 'WOS' was to be used by the latter for the purpose of obtaining mining contracts in Africa, and therefore till the mining contracts .....

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uth Africa (the 'WOS' of the assessee company) , as a loan transaction, on which the TPO observed that the assessee company ought to had charged interest. The TPO rejecting the contention of the assessee company that as the amount remitted to the 'AE' was towards share application money, therefore the TPO was precluded from determining the arm's length interest on the said interest free loan, therein relied on the order of the ITAT, Delhi 'F' Bench in the case of : Pe .....

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equity does not preclude the TPO to determine the arm's length interest on the loans given to the AE's. The TPO referring to and taking cognizance of the manifold factors, Le the various varieties of risks involved in advancing of the amounts, loss of opportunity to the assessee company to earn income on the amount advanced, coupled with the fact that if the said amounts would had been advanced as loans to unrelated parties in the similar circumstances, then interest would had accrued to .....

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eipt of the order of the TPO u/s 92CA(3) of the 'Act', wherein the latter had made the aforesaid adjustments to the ALP of the above said International transaction of the assessee company with its 'AE', therein referring to the provisions of Sec. 92CA(4) of the 'Act', made an addition of ₹ 15,82,636/-(supra) in the hands of the assessee company. 23. That on appeal by the assessee company, the Ld. CIT(A) referring to the provisions of Sec. 73(2) and Sec. 73(2A) of th .....

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rate of 6 month LIBOR plus 150 basis points. 24. That during the course of hearing of the appeal before us, the Ld. A.R of the assessee company, in order to drive home his contention that the remittance made by the assessee company to its WOS/AE was towards share application money, after satisfying all the requisite, parameters under law, which was duly recognised and approved as such, therein referred to the Resolution dated. 21/03/2006 of the 'Board of Directors' of the assessee compa .....

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ntribution in WOS/AE shall be covered by FEMA, 1999 and relevant rules and directions issued there under. The Ld. A.R in order to further fortify his aforesaid contention, therein took us through the details of remittances report issued by the dealer viz., State Bank Of India, wherein it was mentioned that the remittances for the year under consideration were towards additional share capital of WOS/AE (Page 136, 139, 142, 145, 150, 153 and 155 of the 'APB'), as well as referred to the de .....

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ny was allotted 31,120 shares worth US $6,60,000, which therein represented 77% of the total remittances. It was thus averred by the Ld. A.R that in light of the aforesaid factual background, the TPO/A0 had erred in treating the remittance made by the assessee company towards share application money, as a loan transaction, and in light of the said factual background so averred by him, therein submitted that the said re-characterization of the transaction and the consequential addition of ₹ .....

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r revenue authorities to re-characterize the transaction unless the same is shown to be sham or bogus transaction. , therein relied on a host of orders of different benches of the Tribunal, as under:- (i). Bharti Airtel India Vs. ACIT (63 SOT 113)(Del) (ii). Aditya Birla Vs. DCIT (69 SOT 18)(Mum) (iii) Allcargo Global Logistics Ltd.Vs. ACIT (150 ITD 651 )(Mum) (iv) Parle Biscuits (P) Ltd. Vs. DCIT (46 taxmann.coml 1)(Mum) (v). Vijay Electricals Ltd. Addl. CIT (60 SOT 77)(Hyd) (vi). Micro Inks Lt .....

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aforesaid transactions, i.e as that of being in the nature of remittance towards share application money had duly been accepted and had never been held to be sham or bogus, therein relied on a judgment of the Hon'ble High Court of jurisdiction in the case of :- Director of Income Tax (Intl. Taxation) Vs. Besix Kier Dabhol SA (26 taxmann.com 169)(Bom) wherein the Hon'ble High Court recording the findings of the Tribunal, as under:- "Before the Tribunal the case of the Revenue was th .....

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ssing the issue under consideration on a different footing, therein submitted that as the business of a 'WOS' is to be treated as the business of the 'Holding company', therefore going by the said position of law, as the fruits of the investment by the assessee company in its 'WOS' were solely to belong to the assessee company (i.e the 'Holding company'), as the latter remained the sole and absolute owner of the 'WOS', therefore for the said reason, on giv .....

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is aforesaid contention, therein relied on the following Judgments/orders:- (i). CIT Vs. United Breweries (89 ITR 17)(High Court of Mysore) (ii). Bright Enterprises Ltd. Vs. CIT (381 ITR 107)(P&H) (iii). ITO Vs. Sterling Oil Resources (P) Ltd. (67 taxmann.com 2) 28. The Ld. A.R further in order to fortify his contention that re- characterization of a transaction is permissible in only two situations, as under:- (i). Where the economic substance of a transaction differs from its form; and (ii .....

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A.R that even if the aforesaid remittance of share application money was to be treated as a loan transaction, then only the funds against which no shares have been allotted be treated as a loan transaction and interest thereon be considered based on LIBOR plus 150 points as determined by the Ld. CIT(A). 30. The Ld. D.R on the other hand had strongly relied on the order of the Ld. CIT(A) and had averred that the color and character of the remittances made by the assessee company to its WOS/AE wa .....

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various statutory provisions. The Ld. D.R further submitted that not only the circumstances attending right from the remittance of amounts by the assessee company to its WOS/AE, till the allotment of shares and refund of the balance amount, in itself did not inspire much confidence as regards characterisation of the said transaction as that of being in the nature as that of remittance towards share application money, but rather even otherwise, the very fact that the remittances made by the asses .....

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actual position, wherein not only the allotment and refund of the impugned share application money was beyond the parameters contemplated under the statutory provisions as had duly been taken note of and appreciated by the Ld. CIT(A) in the body of his order, but rather the peculiar arrangement entered into between the assessee company and the WOS/AE, wherein in order to facilitate obtaining of mining contracts by the WOS/AE in Africa, there was a specific purpose oriented remittance of funds by .....

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ed remittance of funds by the assessee company in order to facilitate financial assistance of the WOS/AE, in the garb of remittance towards share application money. The Ld. D.R in order to buttress his contention that the TPO had rightly concluded that the remittance made by the assessee company to its WOS/AE was clearly in the sum and substance as that of an interest free loan transaction, and no infirmity as regards such observation of the TPO did surface, therein submitted that in light of th .....

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sessee company not only the economic substance of the transaction pertaining to remittance of funds, which as claimed by the assessee company was towards share application money, clearly differed from its form, but rather even otherwise, the peculiar arrangement and the circumstances attending to the remittance of funds by the assessee company, as claimed by the latter to be towards share application money, viewed in their totality, seriously differed from those which would have been adopted by .....

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, including the orders of the authorities below and are of the considered opinion that though it is claimed that amounts aggregating to US $ 8,60,000 had been remitted by the assessee company by way of 'Share application' money to its wholly owned subsidiary company (for short WOS') viz, Taurian CISA at Abdidjan Ivory Coast of West Africa under the automatic route of 'Foreign Exchange Management Act, 1999' (for short TEMA') for overseas direct investment in terms of Notif .....

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sessee company. Thus the adjudication as regards the color and character of the remittance by the assessee company to its AE/WOS has to be gathered in the backdrop of the aforesaid factual position. Though we are in agreement with the contention of the assessee company that re-characterization of a transaction is permissible only where the economic substance of a transaction differs from its form, and where the form and substance of the transaction are the same but arrangements made in relation .....

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of the Ld. A.R that to the extent 31,120 shares worth US $ 6,60,000 had been allotted to the assessee company, the re-characterization by the AO/TPO of the remittance made by the assessee company by way of share application money to its WOS' to the said extent, as a loan due to delay in allotment of shares is not permissible in the eyes of law, but are unable to persuade ourselves to accept the contention of the Ld. A.R that a similar treatment is also to be accorded to the balance amount of .....

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The aforesaid view so arrived at by us is fortified by the judgment of the Hon'ble High Court of jurisdiction so passed in the case of Director of Income Tax (Intl. Taxation) Vs. Besix Kier Dabhol SA (26 taxmann.com 169)(Bom). However, as regards the balance amount of remittance of US $ 2,00,000 (supra) made by the assessee company to its WOS', against which no shares were allotted and the amount was refunded to the assessee company, we are of the considered view that the factum of adva .....

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f the assessee company to support his contention that re- characterizing of the share application money remitted by the assessee company to its 'WOS', even to the extent where no shares had been allotted against the same and amounts had been refunded to the assessee company, is found to be absolutely misconceived, because a bare perusal of the said orders/decisions therein reveals that in the said cases, shares had been allotted to the respective assesses, while for in the case of the pr .....

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stallized into allotment of any shares to the assessee company, but rather as a matter of fact culminated into refund of the said amount to the assessee company, therefore on consideration of the said transaction in totality, as such, the same at no stage could be characterized as a remittance towards share application money, pursuant whereto the issue of any re-characterization would never arise. In this regard it would further be relevant and pertinent to point out that now when the economic s .....

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stances can be placed as regards re-characterization of such remittance towards share application money as a loan transaction. 32. That still further we are not impressed by the contention of the Ld. A.R of the assessee company that as the business of a WOS' is to be treated as the business of the 'Holding company', therefore going by the said position of law, as the fruits of the investment by the assessee company in its WOS' were solely to belong to the assessee company (i.e th .....

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nt, would therefore not go to prejudice the position of the assessee company in any way. The reliance placed upon by the Ld. A.R of the assessee company on the judgments of the Hon'ble High Courts, is found to be misconceived, as the same are found to be delivered in context of Sec. 36(1)(iii) of the 'Act' and in reference of the issue under consideration in the present case. 33. That in light of our aforesaid observations, we herein set aside the order of the Ld. CIT(A), to the exte .....

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the order of the Ld. CIT(A), to the extent relatable to remittance of US $ 2,00,000 to its aforesaid 'WOS', and the consequent adjustment/addition as regards the same is however sustained, however the A.O/TPO is herein directed to work out and restrict the said adjustment/addition by adopting rate of interest as 6 months LIBOR plus 150 basis point for the delayed receipt of the payments by the assessee company from its aforesaid WOS/AE. Thus in light of our aforesaid observations, the G .....

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aining to the issue under consideration are that the assessee company which is engaged in the business of mining and wind power had in the period relevant to A.Y. 2006-07 and 2007-08 taken railway wagons (2 rakes) on lease, and treating the said lease transaction as an 'Operating lease', had thus claimed the lease rental charges as an expenses as per the provisions of the 'Act', while filing its 'Return of income' for both of the aforesaid assessment years. However, the a .....

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The assessee company while filing its 'Return of income' for the year under consideration, disallowed the 'depreciation' and the expenses in the 'Computation of income' and claimed the 'lease rental' of ₹ 9,70,34,749/- as an expense by treating the lease as on 'Operating lease'. During the course of the assessment proceedings, the assessee company justifying its entitlement towards the 'lease rentals' therein submitted that the treatment of t .....

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actions. The assessee company in order to drive home its contention that the lease transaction was in the nature as that of an 'Operating lease' and not a 'Finance lease' transaction, therein during the course of the assessment proceedings referred to certain articles provided for in the 'Lease agreement' with M/s SREI Infrastructure Finance Ltd., who as per the assessee company was the sole and absolute owner of the wagons. The assessee company in its attempt to further .....

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e assessee company during the course of the assessment proceedings for the year under consideration, that unlike the acceptance by the A.0 of the lease transaction as an 'Operating lease transaction' in A.Y. 2006-07 and allowing of the lease rental as an expenditure in the hands of the assessee company, as claimed by the latter in its 'Return of income', the A.0 while framing of assessment in the hands of the assessee company for A.Y. 2007-08, did not find favour with the claim o .....

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. That the A.O while framing the assessment in the hands of the assessee company for the year under consideration, not finding favour with the contentions of the assessee company that the 'lease transaction' was in sum and substance an 'Operating lease' and not a 'Finance lease', therein referring to various articles of the 'Lease agreement', Schedules to the 'Balance sheet' of the assessee company [Schedule 3, Schedule 19 - Note 5 & Note 1(h), Schedul .....

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ating lease' ,and referring to various clauses of the 'Lease agreement' (supra), therein concluded that the assessee company had misconceived the scope of CBDT Circular No. 2; dt. 09/02/2011, because according to the A.0 though the circular undoubtedly provided that the accounting standards by itself will not have any implication on the allowance of depreciation on assets under the provisions of the Income tax act, however the same could not be stretched to mean that in case of a  .....

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sallowed the amount of ₹ 9,70,34,749/- so claimed by the assessee company as a revenue expenditure. That as regards the 'depreciation' and 'Interest' of ₹ 2,68,14,392/- and ₹ 73,67,890/-, respectively, as had been claimed by the assessee company in its 13 & Loss a/c', the A.0 refused to take cognizance of the same for the reason that the assessee company itself had given up the said claim. The A.0 while declining to consider the entitlement of the assess .....

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an assessee. 37. That on appeal the Ld. CIT(A) referring to the observations of the A.0 as regards the issue under consideration, coupled with the fact that the assessee company though had raised a specific 'Ground of appeal No. 8' as regards the disallowance of the 'Lease rentals' of ₹ 9,70,34,749/-, alongwith an alternative plea that in case the addition was to be upheld, then the assessee company be allowed the 'finance charges' and 'depreciation', as per .....

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d submitted that the lease transaction was in the nature as that of a 'Operating lease' and the authorities below erred in taking the same as a 'Finance lease' and had wrongly disallowed the ₹ 9,70,34,749/- so claimed by the assessee company as a revenue expenditure. Alternatively, it was submitted by the Ld. AR that in case the disallowance was to be upheld by treating the same as a 'Finance lease', then the assessee company be allowed the 'finance charges' .....

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e A.O had taken a similar view on the issue under consideration, which thereafter was upheld by the Ld. CIT(A), and following the said order of his predecessor, the Ld. CIT(A) while disposing of the appeal of the assessee company for the year under consideration, had taken the same view and dismissed the appeal of the assessee company as regards the issue under consideration. It was thus submitted by the Ld. D.R that the order of the Ld. CIT(A) be upheld and the ground of appeal of the assessee .....

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chedule 19 - Note 5 & Note 1(h), Schedule II of the 'Balance sheet', i.e Note to the annexures of 'Fixed assets'], is proved beyond any scope of doubt to be the sole and absolute owner of the wagons, therefore the lower authorities have rightly held that the lease transaction was in the nature as that of a 'Finance lease' and not an 'Operating lease', pursuant whereto the 'lease rental' of ₹ 9,70,34,749/- claimed by the assessee company as an exp .....

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s issued by the ICAI, in its 'Books of accounts' had reflected the value of wagons as 'Fixed assets' in its 'Balance sheet' and categorically raised its claim towards 'Interest' and 'depreciation' on the said assets., and debited the same in its 13 & loss a/c' as an expense, but being of the view that the lease transaction was a 'Operating lease', had thus while filing the 'Return of income' for the year under consideration, disallo .....

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assessee company as regards lease rental' of ₹ 9,70,34,749/-, pursuant thereto we are of the view that the assessee company was duly entitled towards the 'depreciation' and 'Interest' of ₹ 2,68,14,392/- and ₹ 73,67,890/-, respectively, as had been reflected/claimed by it in its 'I' & Loss a/c'. That as regards the entitlement of the assessee company towards its claim of 'depreciation', it would be relevant and pertinent to point out .....

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lease transaction was in the nature as that of a 'finance lease' and not an 'operating lease', therefore as a consequence thereto, it was obligatory on the part of the AO to have allowed 'depreciation' on the wagons owned by the assessee company and used by the latter for the purpose of its business. 40. We are further not impressed by the order of the Ld. CIT(A) who vide his observations recorded at Page 42 -Para 9.3 of his order, had upheld the disallowance by the A.0 .....

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ecessor, the Ld. CIT(A) gravely erred in losing sight of the fact that his predecessor though had confirmed the disallowance of 'lease rentals', but while so doing had categorically allowed the claim of the assessee company towards its entitlement towards 'Interest' and 'depreciation'. Thus the half hearted approach to the issue under consideration by the Ld. CIT(A) is deprecated and we are constrained to hold that the Revenue authorities while following and adopting the .....

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39;, except by way of filing a revised 'Return of income', without going into the issue as to whether the claim raised by the assessee company in the present case towards 'depreciation' and 'Interest', and duly reflected by the latter in the 13 & Loss a/c', but had been added back by the assessee company in its 'Computation of Income', being of the view that the lease transaction was in the nature as that of an 'Operating lease' and not a 'Fina .....

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9; as had been so raised by it in its 'I' & loss a/c'. That as regards the judgment of Hon'ble Apex Court in the case of Goetz India Ltd.(supra), it would be relevant and pertinent to point out that the Hon'ble Supreme Court had clearly held that the observations in the said judgment were in context of the powers of the A.0 and the same were not to impinge on the powers of the Tribunal, and had held as under:- "We make it clear that the issue in this case is limited .....

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9;Interest', and herein direct the A.0 to verify the amount of loan and the amounts of interest payments made by the assessee company during the year under consideration towards such loans taken for purchase of railway wagons through finance lease method and allow the claim of interest payment accordingly. Still further the A.O is directed to verify the rate and amount of depreciation on the railway wagons to which the assessee company would stand entitled as per Sec. 32(1) of the 'Act&# .....

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rate prevailing as at the end of the financial year, on the ground that the same represents notional loss. The assessee company had further alternatively submitted that if the order of the lower authorities is upheld, then in that case the appellant be allowed the loss in the year in which the contract is settled. 43. The facts relating to the issue under consideration are that the assessee company which is engaged in the business of processing and trading of iron ore, carrying out mining activi .....

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wever, the assessee company on the basis of the guidelines issued by the ICAT, claimed the same as an allowable deduction in the 'Return of income' for the year under consideration. The A.0 however treated the impugned loss as notional loss on the ground that the contract was settled in the next assessment year, which order of the A.0 was thereafter upheld by the Ld. C1T(A). 44. That before us it was at the very outset submitted by the Ld. A.R for the assessee company that as the A.0 vid .....

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allowed in the year under consideration, the said ground of appeal is dismissed as not pressed by the assessee company, in terms of our aforesaid observations. GROUND OF APPEAL 8: 45. The assessee company during the year under consideration had made a provision of leave salary of ₹ 1,97,087/-, out of which an amount of ₹ 1,01,903/- had been paid before the 'due date' of filing of the 'Return of income'. The A.0 being of the view that the assessee company by relying o .....

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d the same to the total income of the assessee company. 46. That during the course of hearing of the appeal the Ld. A.R for the assessee company reiterated the submissions made before the Ld. CIT(A). The Ld. A.R fortified its entitlement towards claim of provision for leave encashment amounting to ₹ 95,184/-(supra), by relying on the judgment of the Hon'ble Supreme Court in the case of : Bharat Earth Movers Vs. CIT (292 ITR 470) , wherein it was held that if a business liability had de .....

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of the fact that the said liability is to be quantified and discharged at a future date, as claimed by the assessee company, may therein be allowed. The Ld. D.R on the other hand relied on the order of the CIT(A) and submitted that as the matter was pending adjudication before the Hon'ble Supreme Court and the operation of the judgment of the Hon'ble Calcutta High Court in the case of : Exide Industries Ltd. (supra) had been stayed by the Hon'ble Supreme Court, therefore the appeal .....

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Calcutta High Court in the case of : Exide Industries Ltd. Vs. UOI (292 ITR 470)(Cal), and the Hon'ble Apex Court had stayed the operation of the judgment of the Hon'ble Calcutta High Court, in rem, by observing as under:- "We further make it clear that the assessee would, during the pendency of this Civil Appeal, pay tax as if Section 43B(f) is on the statute book but at the same time would be entitled to make a claim in its returns." thus we are of the considered view that i .....

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