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2017 (1) TMI 1287 - ITAT KOLKATA

2017 (1) TMI 1287 - ITAT KOLKATA - TMI - Disallowance u/s. 14A r.w.s 8D computation under the normal provision of the Act and under the provision of MAT u/s 115JB - Held that:- Assessing Officer is directed to restrict the disallowance under section 14A of the Act to 1% of the exempt income for normal computation of income as well under section 115JB of the Act. The disallowance under section 14A would be added in the book profit under section 115JB of the Act in terms of the clause (f) to expla .....

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the year under consideration - Held that:- The assessee also incurred cost on the joint venture project which was not materialized and accordingly the same was dropped. Admittedly the impugned Joint venture project was identical to the activities of the assessee and therefore it can be inferred that the project was for the expansion of the existing business of the assessee. In view of above the loss incurred by the assessee was in connection and in the course of the business and hence allowable .....

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te should be taken into account while determining the closing stock. The future price of the closing stock cannot form the basis for the valuation of closing stock as on the balance sheet date. Accordingly we hold that the closing stock valued by the revenue is the correct valuation of the closing stock. However it is pertinent to note that the closing stock determined for the year under consideration will become the opening stock for the subsequent financial year. Accordingly the AO is directed .....

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ely, then there would be no interest u/s 234B & 234C of the Act. - Profit arising out sale-purchase of shares treated as capital gain - Held that:- The order of the Hon’ble ITAT in the own case of the assessee cannot form the basis for holding the capital gain loss as business loss. We also find that basis adopted by the AO for treating the capital gain income as business income is not appropriate. We also find that the assessee claimed the capital gain income in the revised return of incom .....

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of book profit - Held that:- AR for the assessee fairly conceded that the issue is squarely covered in favor of Revenue and against the assessee by virtue of the amended provision of Sec. 115JB of the Act. Ld. DR for the Revenue agreed to the submission of the assessee. In the light of the amended provisions of section 115JB of the Act we reverse the order of ld. CIT(A) and this ground of appeal of Revenue is allowed. - Treating the bank interest and interest on tax refund as business incom .....

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und raised by the Revenue is allowed partly. - Provisions for leave encashment - disallowance under the provisions of MAT u/s 115JB - Held that:- The provisions for the leave encashment is ascertained liability and therefore the same cannot be disallowed under the provisions of MAT u/s 115JB of the Act. However from the order of AO we find that necessary details were not furnished at the time of assessment therefore the same was added back. We also find that the remand report was not called .....

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hat the provision does not require the addition of wealth tax. Thus we are of the view to uphold the order of ld. CIT(A). Hence the ground raised by the Revenue is dismissed. - ITA No. 813 & 781/Kol /2009, ITA No. 370-371/Kol /2012 - Dated:- 18-1-2017 - Shri N. V. Vasudevan, Judicial Member And Shri Waseem Ahmed, Accountant Member By Assessee : Shri J.P. Khaitan, AR By Revenue : Shri G. Mallikarjuna, CIT-DR & Shri Rajt Kumar Kureel, JCIT-SR-DR ORDER Per Waseem Ahmed, Accountant Member These .....

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ssessment years 2005-06, 2006-07 & 2007-08 respectively. Shri J.P. Khaitan, Ld. Authorized Representative appeared on behalf of assessee and Shri G.Mallikarjuna & Shri Rajat Kumar Kureel, Ld. Departmental Representatives appeared on behalf of Revenue. 2. All the appeals are heard together to pass a consolidate order for the sake of convenience. First we take up assessee appeal in ITA No.813/Kol/2009 for A.Y. 05-06. 3. Grounds raised by assessee per its appeal are reproduced below:- 1. Th .....

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CIT(Appeals) erred in confirming the disallowance of ₹ 5,60,337/- relating to advances written off without appreciating the fact that the said advance was given in the ordinary course of business of the appellant. 3(a) That on the facts and in the circumstances of the case, the CIT(Appeals) erred in confirming the addition made by the Assessing Officer of increasing the value of closing stock by ₹ 335,64,496/- 3(b) That on the facts and in the circumstances of the case, the CIT(Appea .....

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ces of the case, the CIT(Appeals) erred in confirming the decision of the AO in charging interest under Section 234B of the Act. 5(b) That the CIT(Appeals)erred in not appreciating that the interest under section 234B is not chargeable if the assessee pays taxes under MAT provisions. 6. That the appellant craves leave to add to and/or alter, amend, modify or rescind the grounds hereinabove before or at the hearing of this appeal. 4. First issue raised by assessee in this appeal is that Ld. CIT(A .....

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/- which is exempted u/s 10(34) of the Act but no expense was disallowed incurred in connection with the dividend income. Accordingly while assessment proceedings, AO worked out the expenses incurred in connection with dividend income in the ratio of exempt income and management expenses to the total receipt of the assessee. Similarly, AO also further disallowed 2% of the dividend income towards the expense such as communication, stationery, Demat, bank charges, conveyance etc. Finally AO disall .....

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le 8D of the IT Rules came into effect from 24.03.2008 which is prospective in nature and it has no application for the year under consideration before us. He further prayed before the Bench to direct the Authorities Below by making the disallowance @ 1% of dividend income after having reliance on the jurisdictional High Court Judgment.On the other hand, Ld. DR for the Revenue agreed to the submission of Ld. AR and raised no objection if the disallowance is restricted to 1% of the dividend incom .....

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005-06 and therefore in our considered view rule 8D does not apply in the present case. However at the time of hearing, it was fairly agreed by both the sides that the issue is now covered by the decision of the Hon'ble Calcutta High Court in the case of R.R. Sen & Brothers (Pvt.) Ltd. in G.A. No. 3019 of 2012 dated 4th January, 2013, wherein expenditure at 1% of the dividend income is a thumb rule applied consistently as the expenditure relatable for earning of the exempt income. This v .....

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under section 14A of the Act to 1% of the exempt income for normal computation of income as well under section 115JB of the Act. The disallowance under section 14A would be added in the book profit under section 115JB of the Act in terms of the clause (f) to explanation 1 of section 115JB of the Act as decided by the Hon ble Mumbai ITAT Benches in the case of DCIT Vs. Viraj Profiles Limited ITA No. 4439/Mum/2013 Assessment year 2008-09 vide order dated 21.10.2015. The relevant extract of the or .....

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of Section 115JB(2) of the Act. Book Profit shall be computed as per Section 115JB(2) of the Act which stipulate that Book Profit means net profit as shown in Profit and Loss Account prepared for financial year in accordance with Part II and III of Schedule VI to the Companies Act,1956 , also complying with other conditions as stipulated in Section 115JB(2) of the Act . Such book profit has to be increased by item Nos. (a) to (k) of the said Explanation 1 to Section 115JB of the Act if they are .....

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to therein is debited to Profit and Loss Account. Now, we refer to Section 14A of the Act which reads as under: "Expenditure incurred in relation to income not includible in total income For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by assessee in relation to income which does not form part of the total income under this Act.] The Assessing Officer shall determine the amount of expenditure incurred in rel .....

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expenditure has been incurred by him in relation to income which does not form part of the total income under this Act Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001.]" Perusal of Section 14A of the .....

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n both the afore- stated provisions. The dividend income is declared on the share investment which is exempt u/s 10(33) of the Act (not Section 10(38) of the Act) . We also note that the clause (f) to explanation 1 to Section 115JB(2) of the Act requires expenditure relatable to the exempt income to be disallowed provided the same is debited to Profit and Loss Account while Section14A(2) of the Act mandates that if the AO is not satisfied with the correctness of the claim of the assessee with re .....

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not form part of the total income and is held to be applicable w.e.f. assessment year 2008-09 as held by Hon'ble Bombay High Court in Godrej and Boyce Manufacturing Limited(supra) decision . The impugned assessment year under appeal in present case is also assessment year 2008-09 and hence Section 14A of the Act read with Rule 8D of Income Tax Rules,1962 is applicable. It is axiomatic to assume that the amount computed under Section 14A of the Act read with Rule 8D of Income Tax Rules, 1962 .....

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which is upheld by the CIT(A) in the first appeal and the same amount of expenditure of ₹ 73,07,018/- is added to compute book profit u/s 115JB of the Act which is computed u/s 14A of the Act read with Rule 8D of Income Tax Rules,1962. Respectfully following the proposition laid down by the Hon ble Tribunal we direct the AO to make the addition of the amount of disallowance under section 14A of the Act read with rule 8D of Income Tax Rules 1962 to the total income of the assessee under the .....

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amp; loss account. On question by AO about the details of such advances assessee failed to furnish the necessary details. Accordingly, AO in the absence of necessary details disallowed the advance written off and added to the total income of assessee. 11. Aggrieved, assessee preferred an appeal before Ld. CIT(A) who granted relief partly to assessee by observing as under: 2.1 The principles governing the deduction of bad debts written off by the assessee have been laid down clearly in sec. 36(1) .....

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he past and, hence can be allowed as deduction. The remaining amount of ₹ 5,60,337/- represents loans and advances and was not routed through profit and loss account. The assessee has claimed that, if an advance is made to obtain current assets of the business and has to be written off, the same may be allowed as a deduction. But, it has not been shown that any part of the advances written off by it actually fell in this category. On the contrary, it is seen that major amount of ₹ 4, .....

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n the JV did not take off and the amount was written off, there is no way it can be allowed as a deduction. It was a capital loss. Similarly, the other advances are also prima-facie not on revenue account and, hence, deduction for the same cannot be allowed. In view of the foregoing discussion, the addition related to loans and advances written off is confirmed. As a result, the amount of addition under this item is reduced to ₹ 5,60,337.-. Aggrieved by this, assessee has come up in appeal .....

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UTC). But on a later date the idea of joint venture was dropped, therefore, such loss cannot be constituted as in the course of the business. Such loss is purely in capital in nature. He relied on the order of Authorities Below. 13. We have heard the rival submissions made by both the sides and order of the lower authorities as well as materials available on record. In the present case the AO has disallowed the claim of the assessee for the advance written off for ₹ 10,13,245.00 in the pr .....

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dvances were not made to obtain any current assets of the business. Therefore all the losses were in the nature of capital losses which are not allowable as deduction under the Act. However on perusal of the advances given by the assessee the details of which are placed on page 23 of the paper book, we find that most of the advances were given in the course of the business of the assessee. However out of the said amount one major amount was of ₹ 4,41,089.00 which was incurred in connection .....

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24/2/2004. The activity of this JV was identical as of the assessee as evident from the MOU which is placed on pages 72-76 of the paper book which reads as under:- WHEREAS UTC, a company incorporated in Dubai trading in industrial and water treatment chemicals fertilizers, agrochemicals and plastic raw materials, desires to have a common-user bulk liquid storage terminal facility at Hamriyah Free Zone (HEZ), located in Hamriyah Port Dubai for receipt storage and distribution of liquid products ( .....

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setting up the Project and expressed their willingness to co-operate and carry out their respective roles in the project. NOW therefore, UTC and IMC hereby enter into a Memorandum of Understanding JVC thereafter referred to as MoU and agree to the following terms. Thus from the above it is clear that the assessee wanted to expand its existing business by establishing the joint venture company with UTC in Dubai. In view of the above it can be inferred that the loss was incurred by the assessee i .....

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as allowable u/s.28/37 (1) of the Income Tax Act 1961. The appellant has strongly relied upon the decision of the Hon'ble I.T.A.T. for the assessment year 1991-92 in the appellant's own case wherein the Ld. ITAT relying upon the judgement of the Hon'ble Supreme Court in the case of CIT v. Mysore Sugar Co. Ltd.(46 ITR 649 ) held that the write off of trade advances were allowable deduction u/s.28 of the Income Tax Act 1961 since such expenses were incurred in the normal course of busi .....

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gs without any independent discussions on the subject. Therefore, the finding of fact that the advances written off were incidental to the business of the appellant has remained unshaken. 9. The C.I.T (A) in allowing the claim for deduction of the amount which had been written off, relied on a judgment in the case of CIT v. Mysore Sugar Co. Ltd. [1962] 46 ITR 649 (SC) wherein their Lordships held that:- " ……but the general scheme of the section is that profits or gains must be .....

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ivy Council in Commissioner of Income-tax v. Chitnavis, and has been accepted by this court. In other words, section 10(2) does not deal exhaustively with the deductions, which must be made to arrive at the true profits and gains. To find out whether an expenditure is on the capital account or on revenue, one must consider the expenditure in relation to the business. Since all payments reduce capital in the ultimate analysis, one is apt to consider a loss as amounting to a loss of capital. But t .....

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investment, but in the second, to use a commonly understood phrase, it bears the character of current expenses." 10. Therefore, the question for consideration was, whether the money advanced by the assessee which was written off was or had the character of the revenue expenditure or a capital expenditure? If it had a character of the capital expenditure, then the writing off of the same would not entitle the assessee to claim any deduction. If, on the contrary, it had the character of a re .....

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w material made it an expenditure of a revenue character and, therefore, that was deductible. In the case before us the finding of fact is that the expenditure was incidental to the business. Therefore, the expenditure partook the character of revenue expenditure which is allowable deduction. 12. The question is, therefore answered in the negative and against the revenue. Similarly we also relied in the case of Benani Cement Ltd vs. CIT reported in 380 ITR 116 where the Hon ble Calcutta High Cou .....

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claimed by way of deduction arise? There would have been no occasion to claim the deduction if the work-in- progress had completed its course. Because the project was abandoned the work-in-progress did not proceed any further. The decision to abandon the project was the cause for claiming the deduction. The decision was taken in the relevant year. It can therefore be safely concluded that the expenditure arose in the relevant year. Reference in this regard may be made to the decision in the case .....

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d support & guidance from the judgment of Hon ble Calcutta High Court in the case of CIT Vs. woodcrafts products Limited reported in 217 ITR 862 wherein it was held as under : In the case before us, the expenditure is also for the expansion of the existing business, though the object of manufacture, in contemplation of which the expenditure was incurred, did not materialize. May be, the expenditure is abortive but its character as a revenue expenditure incurred for the purpose of the expansi .....

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ct was identical to the activities of the assessee and therefore it can be inferred that the project was for the expansion of the existing business of the assessee. In view of above the loss incurred by the assessee was in connection and in the course of the business and hence allowable for deduction. The ground raised by the assessee is allowed. 14. Third issue raised by assessee in this appeal is that Ld. CIT(A) erred in confirming the addition made by AO by increasing the value of closing sto .....

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tted that the molasses is not freely traded in the market and same was sold in subsequent year at a price of ₹ 16,61,30,422/-. Therefore, the market value of the molasses as on 31.03.2005 is at ₹ 16,61,30,422/-. However, AO disregarded the claim of assessee by observing that as per the Accounting Standard 2 valuation of inventories issued by the ICAI closing stock should be valued either at a cost or market value as on the date of balance sheet i.e. 31.03.2005. The assessee cannot ta .....

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ock of the assessee was enhanced by a sum of ₹ 3,35,64,496/- to the total income of assessee. 16. Aggrieved, assessee preferred an appeal before Ld. CIT(A) whereas assessee submitted that as per Accounting Standard-11 The Effects of Changes in Foreign Exchange Rates issued by ICAI the events occurring after the balance-sheet date to the extent confirming the adjustment at the balance-sheet date should be taken into consideration. Accordingly, assessee submitted that sale price at which the .....

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ngkok. The assessee further submitted that molasses is perishable commodity and accordingly quality and market rate of the same came down. The assessee also challenged the addition of ₹ 60 lacs on the ground that no material was brought on record for such addition. However, Ld. CIT(A) disregarded the plea of assessee and confirmed the order of AO by observing as under:- 4.6 If it is the case of the assessee that the market price of molasses had declined after the end of the previous year, .....

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be given only in exceptional cases. Otherwise, the principle of valuing the inventory at cost or market price at the end of the previous year, whichever is less, will be totally diluted. 4.7 Regarding the addition of ₹ 60,00,000/- on account of freight, insurance, storage and handling expenses (which should have been factored into the cost of goods but had not been done by the assessee), the A.D. has made a prima-facie case for addition. The fact that such expenses had been incurred by th .....

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asonable estimate and that has been done. The figure of ₹ 60,00,000/- was arrived at on the basis of total expenses as a percentage of total sales and by apply the said percentage to the value of closing stock. In the absence of specific details which have not been furnished by the assessee even before the undersigned, the method applied by the Assessing Officer was the best and cannot be faulted. There should be no doubt that the expenses incurred till the stage of bringing the goods to t .....

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entire clearing expenses. Since the sales were effected on the high-sea, the assessee should not normally be required to incur any significant expenditure by way of handling, freight etc., in respect of the goods sold. In other word, it appear that the expenditure related mainly to the stock for which delivery was taken by the assessee. Of course, the assessee did non-trading business also during the previous year, apart from trading in molasses, and would have incurred expenditure in connection .....

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d by the assessee, the exchange rate prevailing at 31.03.2005 would apply only if the stock was denominated in foreign currency. No doubt, molasses were imported into India. But, they were sold to Indian parties. The closing stock was taken into assessee's own inventory and the value thereof had to be shown only in Indian . rupees. What happened to value of the INR vis-a-vis the USD subsequent to the date of purchase is .immaterial, simply because the closing stock was not denominated in for .....

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of the closing stock for the previous year under consideration. If he has not enhanced the value of the opening stock for the next previous year, the assessee may have a grievance there and may seek appropriate remedy under the Income-tax Act for the present purposes, the assessee s contention is rejected. Being aggrieved by this, assessee has come up an appeal before us. 17. Before us Ld. AR for the assessee AR reiterated the submission made before the lower authorities. It was also submitted .....

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on page 27 of the paper book where actual purchase price and subsequent year actual sale price was placed. The ld. AR also submitted that the products was imported to sale the same to M/s Saraya Industries Limited but subsequently the party canceled the deal. The cancellation letter of the party is placed on page 68 of the paper book. The ld. AR also submitted that there was no market available to determine the value for the closing stock. Moreover there is controlled market in India for the mo .....

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erishable item is not tenable. Besides, the assessee was well equipped with the storage facilities where the molasses could have been easily stored. As per Sec. 145A of the Act the cost incurred in relation to purchase of the goods such as freight, insurance etc., should be added in the value of closing stock. The cancellation letter has no meaning as it is just piece of paper and there is no agreement with the party. Lastly, he vehemently relied on the order of Authorities Below. 18. We have he .....

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ket price whichever is less as on the balance sheet date i.e. 31st March 2005. As per the AO the future price cannot form the basis of valuation of closing stock. The view of the AO was also subsequently confirmed by the learned CIT(A). Now the issue before us arises for our consideration so as to whether the value adopted by the assessee for its closing stock is correct valuation in the aforesaid facts and circumstances. The provisions of section 145A deals with the valuation of closing stock w .....

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called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation. Explanation,- For the purposes of this section, any tax, duty, cess or fee (by whatever name called) under any law or the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment; (b) interest received by an assessee on compensation or on enhanced compensation, as the case may be, shall be deemed .....

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the closing stock on the balance sheet date. The relevant extract of the AS 2 reads as under : 23. Estimates of net realisable value also take into consideration the purpose for which the inventory is held. For example, the net realisable value of the quantity of inventory held to satisfy firm sales or service contracts is based on the contract price. If the sales contracts are for less than the inventory quantities held, the net realisable value of the excess inventory is based on general selli .....

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expected to be sold at or above cost. However, when there has been a decline in the price of materials and it is estimated that the cost of the finished products will exceed net realisable value, the materials are written down to net realisable value. In such circumstances, the replacement cost of the materials may be the best available measure of their net realisable value. 25. An assessment is made of net realisable value as at each balance sheet date. 18.2 In view of above we are inclined to .....

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ken into account, anticipated profit in the shape of appreciated value of stock is not brought into account-Increased profits are not shown before actual realisation-This is the theory underlying the rule that closing stock is to be valued at cost or market price, whichever is lower. In view of above, we find that the closing stock needs to be determined as per the method regularly employed by the assessee. The market price prevailing as on the date of balance sheet date should be taken into acc .....

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e as per law for the subsequent financial year. This ground of appeal of the assessee is dismissed in terms of above. 19. Fourth issue raised by assessee in this appeal is that Ld. CIT(A) erred in not allowing write off of lease premium of ₹ 24,64,304/- as revenue expenditure. 20. At the time of hearing Ld. AR for the assessee has not pressed this issue. Hence, same is dismissed as not pressed. 21. Fifth issue raised in Ground No. 5(a) & 5(b) is that ld. CIT(A) erred in confirming the .....

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n the case of Emami Limited Vs. CIT reported in 337 ITR 470 wherein it was observed as under : A mere reading of relevant provisions leaves no doubt that the advance tax is an amount payable in advance during any financial year in accordance with the provisions of the Act in respect of the total income of the assessee which would be chargeable to tax for the assessment year immediately following that financial year. Thus, in order to hold an assessee liable for payment of advance tax, the liabil .....

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e instant case , the last date of the relevant financial year was 31st March, 2001 and on that day, admittedly, the appellant had no liability to pay any amount of advance tax in accordance with the then law prevailing in the country. Consequently, the appellant paid no advance tax and submitted its regular return on 31st Oct., 2001 within the time fixed by law wherein it declared its total income and the book profit both as nil. However, consequent to the amendment of the provisions contained i .....

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eturn of income but imposed interest under ss. 234B and 234C amounting to ₹ 44,00,937 and ₹ 11,78,960 respectively. The amended provision of s. 115JB having come into force w.e.f. 1st April, 2001, the appellant cannot be held defaulter of payment of advance tax. As pointed out earlier, on the last date of the financial year preceding the relevant assessment year, as the book profit of the appellant in accordance with the then provision of law was nil, one cannot conceive of any " .....

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to make payment of the advance tax on the last day of the financial year i.e. 31st March, 2001 when its book profit was nil according to the then law of the land. In a case like the present one where on the last date of the financial year preceding the relevant assessment year, the assessee had no liability to pay advance tax, he could not be asked to pay interest in terms of s. 234B and s. 234C for default in making payment of tax in advance which was physically impossible.-Star India (P) Ltd. .....

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6. 23. First issue raised by Revenue in this appeal is that Ld. CIT(A) erred in directing the Assessing Officer to hold the profit arising out sale-purchase of shares as capital gain. 24. The assessee in its original return has shown the profit earned on sale of investment as business income but the same was revised in its revised return as Short Term Capital Gains (STCG) and Long Term Capital Gains (LTCG). However, AO disregarded the claim of assessee by observing that the co-ordinate Bench in .....

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y has shown the income under the head business from the sale-purchase of shares. However the income of the assessee from the AY 2003-04 has been shown under the head capital gains and the same has been accepted Ld. CIT(A) and accordingly he reversed the order of AO by observing as under:- 5.2 There is nothing on record to show that the assessee was holding the shares as stock-in-trade or was otherwise doing business in shares. The shares have been shown as investment in the balance sheet (in whi .....

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. With effect from the assessment year 2003-04, this practice was corrected and gains are being shown under the corrected and the same are also being assessee as such. In this situation, there is no justification to change the head of income and to assess it as profits of business. The Assessing Officer is directed to treat the amount as Capital Gains . Being aggrieved by this, Revenue has come up in appeal before us. 26. Before us Ld. DR submitted that considering the volume, frequency and quan .....

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emonstrated that the capital gain income was accepted by the AO. There was no finding given by the Hon ble ITAT in the case of assessee in ITA No. 868/Kol/2006. The ld. AR supported the order of Ld. CIT(A). 27. We have heard the rival contentions of both the parties and perused the materials available on record. The crux of the issue in the instant case is that AO has treated the income of the assessee shown under the head capital gain as income under the head of Business & profession on the .....

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by the assessee against the order passed by the ld. CIT u/s 263 of the Act wherein it was held that the AO has taken one of the possible views. Therefore the order of the AO cannot be held as erroneous. As we find that no ratio was laid down by the Hon ble ITAT in that case by holding that the loss on sale of investment was to be computed under the head as business income or capital gain. Therefore the order of the Hon ble ITAT in the own case of the assessee cannot form the basis for holding th .....

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nything on record to controvert the findings of ld. CIT(A) and the arguments advanced by the ld. AR. Hence this ground of appeal of the Revenue is dismissed. 28. The issue in respect of ground No. 2 is raised by Revenue that Ld. CIT(A) erred in holding that the amount of ₹ 24,15,907/- being provision for doubtful debts and advances should not be added back in the computation of book profit. 29. Assessee in the year under consideration has created provision in respect of doubtful debt and a .....

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s , holding the same as contingent liability. In appeal, it was submitted that the provision was not in respect of any liability but in respect of anticipated erosion in the value of assets. Reliance was also placed on the decision of the Special Bench of Kolkata ITAT in the case of CIT vs. Usha Martin industries Ltd. 288 (AT) ITR 63 in support of the contention that such provision cannot be added back to the book profits. Respectively following the decision of the Hon'ble ITAT, Kolkata on t .....

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ed the materials available on record. There is amendment in section 115JB of the Act which reads as under:- [Special provision for payment of tax by certain companies. 115JB.(1) Explanation[1],- For the purposes of this section, book profit means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by- … …. Explanation 2-For the purposes of clause (a) of Explanation 1, the amount of income-tax shall inclu .....

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n has earned interest income on bank deposits as well as income-tax refund which was treated as business income . However, AO found both the incomes are assessable u/s. 56(2) of the Act and accordingly treated as income from other source . 35. Aggrieved, assessee preferred an appeal before Ld. CIT(A) whereas it was submitted that the income tax was paid on the earning of profit from the assessee s business which in the year under consideration exceeded the actual tax liability. Thus the refund o .....

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f assessee, Ld. CIT(A) reversed the order of AO by observing as under:- 3.1 Considering the facts that: I. Interest on income tax refund was incidental to payment of tax which in turn was incidental to conduct of business, II. The bank interest was substantially earned from FDRs made to obtain bank guarantee in the course of the business. III. Such income has been taxed as part of the profits and gains of the business in the past and IV. No sufficient reason has been brought on record to justify .....

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He further submitted that there was no evidence to establish the nexus between FDR and bank guarantee to show that those were taken for the purpose of assessee s business. It is also not clear at what time the FDR were made whether those were made at the time of bank guarantee or some other time. Ld. DR relied in the case of CIT Vs. V.P. Gopinathan 248 ITR 479 and CIT Vs. Shri Ram Honda Power Equip & Ors 289 ITR 475 and he supported the assessment order. On the other hand, Ld. AR for the as .....

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materials available on record. From the forgoing discussion we find that the AO treated the interest income from bank on FDRs and income tax refund as income from other sources though the assessee claimed the as income from business. Now the issue before us arises so as to whether the income shown by the assessee is business income. At the outset we find that the income from interest on income tax refund is income from other sources in terms of the provisions of section 56(2) of the Act. We also .....

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o participate in the tender. Therefore the interest income is directly linked with the business of the assessee. Accordingly the Ld CIT(A) allowed the appeal of the assessee. Now the crux of the controversy before us is as to whether this interest income is a business income or not. In the case on hand we find that the assessee has made fixed deposit with the bank as margin money for the purpose of availing bank guarantee and interest income was earned thereon. Therefore we find that there is di .....

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levant extract of the order is reproduced below:- In instant case, assessee was a 100% EOU, which had exported software and earned income. A portion of that income was included in EEFC account. Yet another portion of amount was invested within country by way of fixed deposits, another portion of amount was invested by way of loan to sister concern which was deriving interest or consideration received from sale of import entitlement, which was permissible in law. There was a direct nexus between .....

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merit in these appeals. Therefore, first substantial question of law raised in ITA No.428/2007 was answered in favour of revenue and against assessee and first substantial question of law in ITA No.447/2007 was answered in favour of assessee and against revenue. While computing eligible deduction u/s 10B/10A of Act entire profits including interest earned from business of undertaking was to be considered. 37.1 We also rely in the case of CIT Vs. Triputi Wollen Mills Limited reported in 193 ITR 0 .....

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ture in connection with carrying on business, otherwise, he would have allowed only the expenditure which was incurred in connection with earning of the interest income. Thirdly, the Tribunal found as a fact that earning of the interest income arose from the utilisation of commercial assets. The Tribunal found that the funds utilised in making the fixed deposits with the bank were the business funds temporarily lying in surplus with the assessee. On these facts, the income derived from the utili .....

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t extract of the order is reproduced below : Exemption under s. 10BA-Profits derived from export of eligible goods- DEPB-Tribunal was justified in holding DEPB as a profit derived from export business for the purpose of computing deduction under s. 10BA-No question of law arises-Liberty India vs. CIT (2009) 225 CTR (SC) 233 : (2009) 28 DTR (SC) 73 : (2009) 317 ITR 218 (SC) distinguished; Arts & Crafts Exports vs. ITO (2012) 66 DTR (Mumbai)(Trib) 69 affirmed Tribunal was justified in holding .....

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nt in fixed deposits by the assessee being only to secure a bank guarantee to be offered to KPTCL in order to acquire a contract work, interest on such fixed deposits cannot be treated as an income from other sources and has to be treated as business income-CIT vs. Govinda Choudhury & Sons (1994) 116 CTR (SC) 61 : (1993) 203 ITR 881 (SC) relied on In this connection we also find guidance and support from the judgment of Hon ble Supreme Court of India in the case of CIT Vs. Govinda Choudhury .....

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receipts from the contracts. It is obviously attributable and incidental to the business carried on by him. It would not be correct, as the Tribunal has held, to say that this interest is totally de hors the contract business carried on by the assessee. It is well -settled that interest can be assessed under the head income from other sources' only if it cannot be brought within one or the other of the specific heads of charge. It is difficult to comprehend how the interest receipts by the .....

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guidance and support from the judgment of Hon ble Supreme Court of India in the case of Shyam Bihari Vs. CIT & ANR reported in 345 ITR 283. The relevant extract of the order is reproduced below:- The Karnataka High Court in Commissioner of Income Tax Vs. Chinna Nachimuthu Construction 297 ITR 70 noticed that the investment of amount in fixed deposits by the assessee was only to provide a bank guarantee to the contractee in order to acquire the contract work. On such facts it held that the in .....

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hu Construction 297 ITR 70 relied. Interest earned by the assessee on the investment of amount in fixed deposits which was only to provide a bank guarantee to the contractee in order to acquire the contract work, could not be treated as income from other sources and had to be treated as business income only. In the present case the assessee has also earned income from the interest on the margin money deposited with the bank in order to avail the bank guarantee in order to participate in tenders. .....

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treating the interest from bank for ₹ 95,48,755/- and interest of income tax refund for ₹ 38,50,185/- as business income. 40. We have already discussed the same issue embodied in Para 38 of this order and taking a consistent view in assessee; s appeal in ITA No.813/Kol/2009, Revenue s issue is partly allowed in terms of the above. 41. In respect of issue No.2 raised by Revenue is that Ld. CIT(A) erred in deleting the addition made by AO on account of leave encashment for provision of .....

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ved, assessee preferred an appeal before Ld. CIT(A) whereas assessee submitted that the provision of leave encashment is representing the ascertained liability and relied in the case of Bharat Earth Movers vs. CIT 245 ITR 428 (SC). Assessee also submitted that in the immediate preceding assessment year 2005-06 Ld. CIT(A) allowed the issue in favour of assessee. After considering the same, Ld. CIT(A) reversed the order of AO by observing as under:- (17) I have considered the submission of the app .....

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liability which was created by the appellant on the basis of terms and conditions of employment. Hence, the provision for leave encashment could not be added for determination of book profit u/s. 115JB of the Act. Following the decision of the predecessor CIT(A), in the case of appellant for A.Y 2005-06, I direct the AO to exclude the provision for leave encashment from the book profit u/s. 115JB of the Act. the ground no. 7 is allowed. Being aggrieved by this, Revenue has come up in appeal befo .....

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the learned A are before us submitted that all the documents along with computation of income and financial statements were made available to the assessee learned CIT a at the time of appellate stage and accordingly the lease was granted by the learned CIT the learned AR also submitted that on similar issue for the assessment year 2005 6 the learned CIT a allowed the relief to the assessee The learned DR in rejoinder submitted that the legal position with regard to the provision for leave encas .....

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as ascertained liability and allowed relief to the assessee. Admittedly as per the provisions of section 115JB of the Act the provisions representing the unascertained liability will be added to the Book Profit under the provisions of section 115JB of the Act. The provisions for leave encashment is ascertained liability as held by the Hon ble Supreme Court in the case of Bharat Earth Movers Vs. CIT reported in 245 ITR 428. The relevant extract of the order is reproduced below : If a business lia .....

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. It does not make any difference if the future date on which the liability shall have to be discharged is not certain.-Metal Box Co. of India Ltd. vs. Their Workmen (1969) 73 ITR 53 (SC) and Calcutta Co. Ltd. vs. CIT (1959) 37 ITR 1 (SC) : TC 16R.197 applied. Provision made by the appellant company for meeting the liability incurred by it under the leave encashment scheme proportionate with the entitlement earned by employees of the company, inclusive of the officers and the staff, subject to t .....

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entary statement of case when they find the one already before it not satisfactory. Art. 144 of the Constitution obliges all authorities, civil and judicial, in the territory of India to act in aid of Supreme Court. Failure to comply with the directions of this Court by the Tribunal has to be deplored. The Tribunal is expected to be more responsive and more sensitive to the directions of this Court. Liability incurred by assessee under the leave encashment scheme applicable to its employees prop .....

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icer treated provision made by assessee towards leave encashment of employees as in respect of unascertained liability and added same in book profit for purpose of levy of MAT - Tribunal deleted addition and held that provision made was in respect of ascertained and definite liability - Whether since issue was already stand answered by decision of Apex Court in Bharat Earth Movers v. CIT [2000] 112 Taxman 61, appeal filed by revenue was to be dismissed - Held, yes [Para 3] [In favour of assessee .....

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o restore the issue to the file of AO for fresh adjudication as per law with the direction to verify whether the provision for leave encashment has been crystallized. Hence the ground of appeal of the Revenue is allowed for the statistical purposes. 46. In respect of last issue raised by Revenue is that Ld. CIT(A) erred in deleting the addition made by AO on account of provision for Wealth Tax Act, 1952 in the book profit. 47. At the outset we find that the provisions of section 115JB of the Act .....

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