TMI Blog2017 (6) TMI 591X X X X Extracts X X X X X X X X Extracts X X X X ..... Under these circumstances and in view of the detailed order passed by the ld. CIT(A) on this issue, we find no infirmity in the same. Accordingly, the same is upheld and Ground No. 1 raised by the Revenue is dismissed. Addition to difference between the figures reported to the Sales Tax authorities and the figures as per the Income-tax return - Held that:- We find the ld. CIT(A) deleted such addition on the ground that the assessee is following this method consistently and such difference has already been disclosed in the return filed for subsequent year. We do not find any infirmity in the order of the ld. CIT(A) on this issue. The submission of the ld. counsel for the assessee that the assessee is consistently following this method of accounting and the difference between the value of stock declared to Sales Tax authorities and the Income-tax authorities are offered to tax in the subsequent years could not be controverted by the ld. DR. Under these circumstances and in view of the detailed reasoning given by the ld. CIT(A), we do not find any infirmity in his order deleting the addition by following the rule of consistency. The ground raised by the Revenue is accordingly dismi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment or summary assessment. Considering the totality of the facts of the case, disallowance of ₹ 25,000/- under the facts and circumstances of the case, in our opinion, will meet the ends of justice. Addition as interest from temporary deployment of surplus loan funds and not allowing it to be reduced from the total interest cost of the loan funds - Held that:- We find the Hon’ble Supreme Court in the case of Rajendra Prasad Mody [1978 (10) TMI 133 - SUPREME Court ] has held hat expenditure laid out or expended wholly and exclusively for the purpose of making or earning such income is an allowable deduction. Following the above decision, we are of the considered opinion that assessee should be given due credit for interest expenditure incurred for earning such interest income. Accordingly, the alternate submission of the assessee is allowed. The Assessing Officer is directed to verify the amount of expenditure apportioned for the investment required for earning such interest income. - ITA No. 2518/DEL/2013, ITA No. 2882 /DEL/2015 - - - Dated:- 31-5-2017 - Shri R.K. Panda Accountant Member And Smt. Beena A. Pillai, Judicial Member Assessee by : Shri Ajay Vohra, Sr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee to explain the difference. 5. In response to the said query, the assessee brought certain new facts before the A.O, the detals of which are as under: Short term Capital gain /Long term capital loss) 46.84 Add:- STCG transferred to Orissa division 132.89 Less:- Difference in cost due to bonus share as per AS-13 200.00 STCL as per I T return (20.27) 6. From the above, the A.O observed that there was total short term capital gain of ₹ 179.73 lakhs which includes short term capital gain transferred to Orissa division of ₹ 132.89 lakhs for de-capitalization. However this figure has been stated as ₹ 131.64 lakhs in the letter of the assessee. Further, a sum of ₹ 200 lakhs has been deducted on account of difference in cost due to bonus shares. Even this figure of loss of ₹ 200 lakhs has been stated at ₹ 198.75 lakhs in the letter of the assessee. According to the Assessing Officer, both these details of income transferred in Orissa division for de capitalization and asking for the benefit of loss due to bonus share has come to his notice at the fag end of the assessment proceedings. No reasons for decapitalization of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. The ld. DR strongly objected to the order of the ld. CIT(A). He submitted that FIFO is not applicable since it is a mixed system of accounting. He accordingly submitted that since the order of the A.O was justified under the facts and circumstances of the case, the same should be upheld and the order passed by the ld. CIT(A) should be reversed. 10. The ld. counsel for the assessee, on the other hand, strongly supported the order of the ld. CIT(A). Referring to the provisions of section 94(8) of the Income-tax Act, 1961, he submitted that the said provisions are not applicable to the facts of the present case since the conditions are cumulative. He submitted that in the instant case, the units were purchased on 24.11.2004 and the period of three months expires on 24.02.2005. However, the allotment of bonus shares was made in March 2005. Referring to page 11 of the order of the ld. CIT(A), he drew the attention of the Bench to the submissions filed by the assessee before the ld CIT(A), according to which, the assessee had purchased units of TATA Guilt Securities Fund for ₹ 4 crores on 24.11.2004. The said Mutual Fund declared bonus at the ratio 1:1. Accordingly, the cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 96 lakh units of the fund at original cost of 4 crores only. During the impugned A.Y, the assessee had sold 18.98 lakh units at a consideration of ₹ 2,03,61,324/- by apportioning the cost of ₹ 2 crores. However, for tax purposes, the cost of the units sold was taken at original cost of ₹ 4 crores, thus resulting in loss of ₹ 1,96,38,676/-. The assessee adjusted the said capital loss on account of sale of Tata Guilt Securities Fund with capital gain of ₹ 1,76,12,162/- on account of sale of other mutual funds/units/securities. Thus, the assessee declared net capital loss of ₹ 20,26,514/- 15. While doing so, the assessee had computed cost of Tata Guilt Securities Fund which were sold applying FIFO principle. We find the A.O disregarding the various submissions made by the assessee, made an addition of ₹ 1,84,48,188/- which has been deleted by the ld. CIT(A). The reasoning given by the ld. CIT(A) has already been reproduced in the preceding paras. We do not find any infirmity in the same. As submitted before the ld. CIT(A), we find the assessee had purchased units of TATA Guilt Securities Fund on 24.11.2004 and the said Mutual Fund declared ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eads as under: On the facts and in the circumstances of the case, the learned CIT(A) erred in not appreciating that sales is to be recognized as per the established accounting policies at the time of crediting the sales in the books of accounts and not arbitrarily by taking shipping of goods as reference point for booking of sales in respect of exports. This accounting of sales cannot be accepted merely on the ground of consistency. 20. Facts of the case, in brief, are that the A.O, during the course of assessment proceedings, observed that there is difference in the amount of sales reported to Sales Tax Authority and the amount of sales declared in the I.T. Return. He, therefore, asked the assessee to explain the discrepancy. From the various details filed by the assessee, he observed that the sales declared by the assessee before the Sales Tax Authority included the value of stock of finished goods aggregating to ₹ 100.03 crores whereas the value of goods lying at the port with the return filed before the I.T. authorities was at ₹ 80.52 crores. Rejecting the various explanations given by the assessee, the A.O made addition of ₹ 19.51 crores being the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Tax authorities and the value declared for I.T. purposes, the A.O was fully justified in bringing to tax the difference between the two. 24. The ld. counsel for the assessee, on the other hand, heavily relied on the order of the ld. CIT(A). He submitted that whatever difference is there about the figure between the Sales Tax Return and I.T. Return, such difference has been accounted for in the subsequent year. He submitted that the assessee is following this type of system consistently and the Revenue has never challenged this system. Therefore, in view of the decision of the Hon'ble Supreme Court in the case of Radhasoami Satsang Vs. CIT reported in [1992]193 ITR 321 [SC] the Principle of Consistency should be followed. Since the ld. CIT(A) has deleted the addition by relying on the decision of the Hon'ble Supreme Court in the case of Radhasoami [supra] and since the assessee has accounted for such difference in the subsequent year, therefore, the order of the ld. CIT(A), being in accordance with law, should be upheld. 25. We have considered the rval arguments made by both the sides, perused the orders of the A.O and the ld. CIT(A) and the paper book filed on beha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mandatory requirement of law. Further, the Profit and Loss Account filed for all such units indicates claim of nominal expenses under administrative expenses. Though the group has taken huge borrowings for which interest has been paid and claimed, however, the assessee has not claimed such interest in this profit and loss account and, therefore, the net profit ratios in all these units have been shown at a very high percentage, as compared to net profit ratio declared by company as a whole. 28. According to the Assessng Officer, when neither the balance sheet has been drawn nor got audited by the auditors with respect to each eligible industrial unit when such accounts carry factual apparent mistake i.e non-accounting of various expenses like interest on borrowed capital and various expenses had not been claimed commensurate to its revenue, therefore, determination of profit of such eligible units is subject to examination. In view of the above, the Assessing Officer held that the report obtained from an Accountant in Form No. 10 CCB can be said to be incomplete in view of non-availability of proper balance sheet of these units and accounting of proper expenses and income thereo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee on an estimated basis at 10% on the total turnover of ₹ 137.18 crores. It is not clear from the assessment order whether the Assessing Officer wants to allow ₹ 13.72 crores or to disallow. It was argued that the Finance Act, 2002 w.e.f assessment year 2003-04 under sub-section (7) of section 80IA has made it mandatory for the assessee to furnish alongwith the return the report of the auditors in the prescribed form. Therefore, from assessment year 2003-04 onwards, the claim of the assessee is duly supported by audited balance sheet, profit and loss account and the report of the auditors in Form No. 10CCB. The assessee submitted that the Assessing Officer failed to appreciate that the assets which were purchased out of the borrowings have since been liquidated in the earlier years in respect of the said units. It was finally argued that since the accounts prepared by the assessee have been duly audited by the Chartered Accountants and certified, which is the requirement of the law, therefore, the Assessing Officer should not have disallowed the deduction u/s 80IA of the Act as claimed by the assessee. 30. Based on the arguments advanced by the assessee, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve also considered the various decisions cited before us. We find the Assessing Officer disallowed the claim of deduction to the extent of 10% of turnover of ₹ 137.18 crores as against 26.07 crores claimed by the assessee on the ground that the balance sheet of the assessee neither contained any liability nor any asset other than the plant and machinery in respect of plant No. III to VIII. Further, according to the profit and loss account filed for all such units show incurring of nominal expenses and the assessee has not claimed various expenses like interest on borrowed capital. According to the Assessing Officer, the various expenses claimed by the assessee do not commensurate with its Revenue. The Assessing Officer, therefore, disallowed the claim of deduction at 10% of the total turnover thereby making addition of ₹ 13.72 lakhs. From the order of the Assessing Officer, it is not clear as to whether he wanted to allow 10% deduction on the total turnover or sustained the same. In the end, the Assessing Officer herein has made addition of ₹ 13.72 crores towards disallowance of deduction claimed under Chapter VIA. From the various details furnished by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) of section 14A of the Act. 1.2 That the Commissioner of Income Tax (Appeals) erred on facts and in law in considering the provisions of sub section (2) of section 14A read with Rule 8D of the Rules, prospective in operation and are applicable to the year consideration. 2. That the Commissioner of Income Tax (Appeals) erred on facts and in law in sustaining addition of ₹ 6,11,95,775 earned as interest from temporary deployment of surplus loan funds and not allowing it to be reduced from the total interest cost of the loan funds. 2.1 That the Commissioner of Income Tax (Appeals) erred on facts and in law in directing the assessing officer to tax income of ₹ 1,32,88,683 earned from sale of investment made out of temporary deployment of loan funds, as short term capital gains. 2.2 That the Commissioner of Income Tax (Appeals) erred on facts and in law in not appreciating that the interest income/ STCG was earned on the funds which are temporarily surplus out of the loan funds raised for the green field project at Orissa and the same has been capitalized as per the accounting standard AS-10 for fixed assets and AS-16 for borrowing costs. 2.3 That ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce. 42. However, the CIT(A) was also not satisfied with the above explanation given by the assessee. He observed that expenditure for earning above income cannot be ruled out. Further the disallowance made is mere 3.3% of the investment in the assets and 13.9% of the exempt income. Therefore, he held that such disallowance made by the Assessing Officer is reasonable. He accordingly upheld the disallowance made by the Assessing Officer. 43. Aggrieved with such order of the CIT(A), assessee is in appeal before us. 44. Ld. counsel for the assessee strongly challenged to the order of the CIT(A). He submitted that no such disallowance has been made in the past. The assessee has not incurred any interest expenditure on account of borrowals for investment in the said fund. No nexus has been proved by the Assessing Officer that the assessee has infact incurred some expenditure for earning tax-free dividend income. He accordingly argued that disallowance made by the Assessing Officer and upheld by the CIT(A) should be deleted. 45. Ld. DR, on the other hand, heavily relied on the order of the CIT(A). He submitted that Assessing Officer has not disallowed any interest expenditure. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y deployment of surplus loan funds and not allowing it to be reduced from the total interest cost of the loan funds. In Ground No. 2.1 to 2.3 the assessee has challenged the order of the ld. CIT(A) in directing the Assessing Officer to tax the income of ₹ 1,32,88,683/- earned from sale of investment made out of temporary deployment of funds as short term capital gain. 48. Facts of the case, in brief, are that the Assessing Officer, during the course of assessment proceedings, specifically asked the assessee to explain the basis of de-capitalization of interest of ₹ 6,11,95,775/-. The assessee drew the attention of the Assessing Officer to the report made at page 66 of the Annual Report which shows that de-capitalization of interest income of ₹ 785.49 crores at one hand and on the other hand it shows the expenditure charged to the Revenue during the year under assessment of ₹ 1077.31 crore. According to the Assessing Officer, if the contention of the assessee is accepted that Orissa Project has not come into production then how and why a sum of ₹ 1077.31 crores has been charged to revenue account after de-capitalization of interest/ other miscellaneo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of the present case. 50. Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal. 51. Ld. counsel for the assessee referring to the decision of Hon ble Supreme Court in the case of Tuticorn Alkali Chemicals and Fertilizers Limited (supra) drew the attention of the Bench to para 1 of the order, according to which the company was incorporated on 03rd December, 1971 and the trial production of the factory of the company commenced on 30th June, 1982. For the purposes of setting up of the factories, the company had taken loans from various banks and financial institutions. That part of the borrowed funds, which was not immediately required by the company, was kept invested in short term deposit with bank on which interest income was earned. Under these circumstances, the Hon ble Supreme Court held that interest earned on borrowed funds invested prior to commencement of business has to be assessed as income from other sources and it cannot be said that interest income is not taxable on the ground that it would go to reduce interest on borrowed amounts which would be capitalized. He accordingly submitted that the decision relied upon by the CIT(A) i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f loan funds raised for the Orissa Project. Copy of the loan sanction letter in respect of Orissa project was also submitted during the assessment proceedings. The assessee had categorically submitted before the lower authorities that such interest expenses and the interest income as a result of apportionment of loan received on account of Orissa Project ae inextricably and intrinsically linked with each other. 54. We find the Hon ble Supreme Court in the case of Rajendra Prasad Mody [supra] has held hat expenditure laid out or expended wholly and exclusively for the purpose of making or earning such income is an allowable deduction. Following the above decision, we are of the considered opinion that assessee should be given due credit for interest expenditure incurred for earning such interest income. Accordingly, the alternate submission of the assessee is allowed. The Assessing Officer is directed to verify the amount of expenditure apportioned for the investment required for earning such interest income. The ground no.2 to 2.3 raised by the assessee are accordingly partly allowed for statistical purposes. 55. In the result, the appeal filed by the assessee is partly allow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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