TMI Blog2017 (6) TMI 1146X X X X Extracts X X X X X X X X Extracts X X X X ..... [A] as well as the Tribunal, what the assessee did was only make a provision for a possible expenditure or liability. It was thus neither an allowance nor deduction, in any case, not for any loss, expenditure or trading liability incurred by the assessee. In that view of the matter, the Tribunal correctly held that Section 41 (1) of the Act would not apply. Further, we have noticed that CIT (A) has permitted the Assessing Officer to re-verify whether any deduction towards such provision was allowed in the assessment years 2003-04 to 2007-08. He further provided that if any amount of such provision is found allowed, for the said years to that extent, the provision on written back is to be taxed under Section 41 (1) of the Act. This has also been confirmed by the Tribunal. This is one more ground to convince us not to interfere. No reason to interfere with the order of ld. CIT(A) deleting the addition made u/s 41(1) of the Act towards provisions written back. Accordingly, this ground of Revenue is dismissed. - ITA No.1041/Ahd/2012, And ITA No.1225/Ahd/2012 - - - Dated:- 7-11-2016 - Shri Rajpal Yadav, JM, And Shri Manish Borad, AM For The Appellant :Shri Sanjay R. Shah, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 4A of Companies Act. Assessee is providing loans to co-operatives federationsl/unions (enaged in procuring milk and manufacturing milk products like cheese, butter, etc.) which are repayable over a period from 7 to 20 years. Milk Production recognized as industry by CCBDT in notification no.SO 627(E) dated 4/8/99. Dairy activity is covered in industry as per clause 27 of First Schedule of IRDA Act. All loanee co-operatives were not engaged only in milk production but were mainly in manufacture of milk products. Proviso to section is not applicable to assessee being body corporate not having paid up share capital or in absence of share capital the same to be treated as zero. 8. On the other hand, ld. DR submitted that the issue raised in this ground is squarely covered against the assessee by the order of the Tribunal vide ITA No.454/Ahd/2006 for Asst. Year 2003-04 which has been followed by the Tribunal in ITA Nos.3200 3201/Ahd/2010 for Asst. Years 2004-05 2007-08 and others. 9. We have heard the rival contentions and perused the record. Through this ground assessee has challenged the action of ld. CIT(A) confirming disallowance claimed u/s 36(l)(viii) for ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome Tax Act. It is submitted that the amount represents an expenditure incurred by the appellant for the purpose of objects of the appellant and thereby fulfills all conditions of section 36(1)(xii) of the Income Tax Act and accordingly it is entitled to deduction u/s. 36(1)(xii). It is submitted that it be so held now. 3.1.The learned Commissioner of Income Tax (Appeals) has erred in not appreciating the details filed during assessment proceedings which are in line with direction of Hon'ble ITAT while setting aside the order for fresh verification in A.Y. 2003-04. It is submitted that in the facts learned CIT(A) ought to have allowed on the facts rather than confirming the disallowance relying on ITAT and CIT(A)'s order for earlier years. 3.2.In any event the same is allowable u/s. 37/28 of the Income T'ax Act and therefore, the same ought to have been allowed as deduction. It be so held now. 12. Ld. AR submitted that the assessee incurred expenses to carry out the objects of NDDB Act, 1987. Grants were given out of own funds and not out of any grants received from Central Government. Untill all the conditions are fulfilled, grants re shown as advance and de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of section 36(J)(xii) of the IT Act and accordingly it is entitled to deduction it's. 56(1 )(xiij. It is submitted that it be so held now 16. It was submitted by the learned AR of the assessee that in A.Y.2003-2004, the Tribunal had recalled the earlier order, and it was held that the grant is allowable as an expenditure under section 36(l)(xii) of the Act, and the matter was sent back to the AO for verification (j) whether the alleged non-refundable grants are given from grants received or not, and (ii) non-refundable grants sanctioned, are claimed as only when fund are already utilised/ fund utilisation report are received. He also submitted that under similar facts, in A.Y.2004-05, 2005-2006 and 2006- 2007, the Tribunal has restored back the matter to the file of the AO for readjudication. Accordingly, in the present year also, we set aside the order of the CIT(A) on this issue, and restore this matter back to the file of the AO for fresh decision with similar directions, as has been given by the Tribunal for A.Y.2004-05. 2005-2006 and 2006-2007. This ground of the appeal is allowed for statistical purpose. 16. Respectfully following the decision of the Co-or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer dated 01/11/2010 that investment in securities from which exempt income has been received were made from own funds and no other expenses were incurred for earning exempt income. No nexus proved by Assessing Officer to establish that borrowed funds are used for tax free investment. Reliance is placed on i. CIT vs. UTI Bank Ltd. 32 taxmann.com 370 (Guj) ii. CIT vs. Gujarat Narmada Valley Fertilizers Co. Ltd. 42 taxmann.com 270 (Guj) iii. CIT vs. Reliance Utilities Power Ltd. 313 ITR 340 (Bom) followed in Mumbai ITAT decision in the case of HDFC Bank (61 taxmann.com 361) iv. CIT vs. Hero Cycles Ltd.323 ITR 518 (Puj Har) Interest is paid to banks for overdraft taken for short periods to meet the temporary business expenditure requirement. Without prejudice if at all any expenses could be said to have been incurred for exempt income, it could be expenses of administrative nature of ₹ 30,000/- as calculated by assessee. 21. Ld. DR on the other hand supported the orders of lower authorities. 22. We have heard the rival contentions and perused the material placed before us. The issue raised by assessee is against the order of ld. CIT(A) confirming disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA 626/10 and WP 758 of 2010, after considering ITAT, Mumbai's Special Bench's decision in the case of Daga Capital Management Put. Ltd. held that Rule 8D would apply w.e.f. A.Y. 2008-09. However, 'the Court also held that even prior to A.Y.2008-09, when Rule 8D was not applicable, Assessing Officer has to enforce the provisions of sub-section 1 of section 14A and for that purpose, Assessing Officer is duty bound to determine expenditure incurred in relation to income not forming part of total income under the Act. The Court has directed to adopt a reasonable basis or method consistent with all the relevant facts and circumstances after providing reasonable opportunity to the to place all germane material on record. Thus, while Rule 8D is not applicable to the assessment year in question, expenditure in relation to exempt income is still to be determined in a reasonable manner. 6.2.1. So far as determination of reasonable expenditure in respect of exempt income in a reasonable manner is concerned, the matter has been examined at length in appellant's case in A.Y. 2004-05 in my order No. No.CAB/IV-A-148/09-10 dated 30.09.2010, wherein after examining nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act, 2002, section 44 of the NDDB Act was omitted w.e.f. 1.4.2003 and hence NDDB became a taxable entity from A.Y. 2003-04 onwards. It derives income from business of promoting, financing, constructing, sponsoring, researching, facilitating training, collecting data and such other initiatives for the development of dairy and other agriculture based and allied industries through cooperative initiatives. The major activities of NDDB are as under: (i) Promotion and development of dairies and other agricultural waste industries in public sector. (ii) Facilitating research, imparting technical know-how. (iii) Training (iv) To provide financial assistance by way of loans, grants to co-operative unions/federations and subsidiaries of NDDR for fulfilling the objective i.e. economic development of rural masses and improving their quality of life through cooperative efforts. (v) Consultancy and Managerial services (vi) Marketing support (vii) Collection and compilation of data and statistics (viii) Giving assets on lease The reason for observing the above facts that the assessee was not the taxable entity upto Asst. Year 2002-03 and certainly had investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.10 31991.62 19.99 26. Further the interest expenditure incurred by the assessee during the year comprises interest paid to Government of India at ₹ 10.94 crores and interest paid to banks at ₹ 71.40 lacs. Taking both the facts together and also in view of various judicial pronouncements referred and relied by the assessee we find that assessee was having sufficient interest free funds and in order to cover the investments made which were approximately 40% of the total reserve and surplus held by the assessee at the close of the year and further Revenue has been unable to prove any nexus of flow of interest bearable funds to investments we find no reason to sustain the disallowance of ₹ 10,59,435/- u/s 14A of the Act emanating out of interest expenditure incurred by the assessee. 27. As far as disallowance of ₹ 2,53,16,471/- being 0.5% of average investments of ₹ 506.33 crores we observe that assessee was not taxable entity till Asst. Year 2002-03 in view of the provisions of section 44 of the NDDB Act. Most of the investments are either being carried forward from the previous years an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave given direction to allow the expenses in the respective years. 30. Ld. AR submitted that during the year total prior period expenses were of ₹ 3316039/- out of which ₹ 2353987/- has been disallowed in the return of income and fairly accepted that the correct amount of disallowance is of ₹ 2553155/-. Ld. AR also submitted that an amount of ₹ 303794/- was also written off as prior period expenses being old balance written off pertaining to financial year 1997-98. 31. On the other hand, ld. DR supported the orders of lower authorities. 32. We have heard the rival contentions and perused the record. Assessee is aggrieved with the order of ld. CIT(A) sustaining disallowance of prior period expenses of ₹ 502942/-. From going through the submissions of ld. AR we find that ld. AR has conceded for the disallowance of ₹ 199148/- being difference of the correct amount of disallowance calculated by assessee at ₹ 25,53,135/- as against ₹ 23,53,987/- being disallowed in the computation of income. To this extent a disallowance of ₹ 199148/- is sustained. 33. As far as remaining disallowance of ₹ 303794/- is concerned on r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment Year 2004-05 2005-06, the AO may be directed to allow depreciation on the closing Written Down Value of the Block of assets for the immediately preceding year as may be finally determined in earlier year. 35. At the outset ld. AR submitted that the above ground nos.7, 8, 9 have been adjudicated by the Tribunal in their appellate order for Asst. Year 2007-08 vide ITA Nos.3200 3201/Ahd/2010 and others and raised no objection if the consistent view is taken for this year also. 36. Ld. DR duly supported the orders of lower authorities and has no objection if the decision for Asst. Year 2007-08 of the Tribunal is followed. 37. We have heard the rival contentions and perused the material on record. Ground no.7 relates to non-admission of additional ground. Ground no.8 relates to interest income of North Kerala Dairy project funds considered as taxable income and ground no.9 relates to disallowance of ₹ 328745/- being contribution made to employees recreation trust. Ground no.12 requests for following the Tribunal s order directing the Assessing Officer to allow depreciation on the closing written down value of the block of assets for the immediately preceding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fairly conceded by the learned AR of the assessee that this issue was decided by the Tribunal against the assessee in A.Y.2003-2004 and subsequent years. Accordingly, in the present year also, this ground is rejected. 29. For the ground no.3 also, it was fairly conceded by the learned AR of the assessee that the issue was decided against the assessee by the Tribunal for A.Y.2003-2004 and subsequent year. Accordingly, this ground is also rejected. 30. In the result the appeal of the assessee is partly allowed for statistical purposes. 39. Respectfully following the decision of the Co-ordinate Bench, we adjudicate ground nos.7, 8, 9 12 as follows.Ground no.7 additional grounds are admitted. 40. Ground no.8- consistently following the decision of the Coordinate Bench for Asst.year 2004-05 and subsequent years, we are of the view that interest income of North Kerala Dairy Project at ₹ 19925225/- is to be considered as taxable income. 41. Ground no.9- following the decision of the Co-ordinate Bench for Asst. Year 2004-05 and subsequent years disallowance of ₹ 328745/- is sustained. 42. Ground no.12 -respectfully following the decision of Co-ordinate Benc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 liability to pay such tax must exist on the last date of payment of advance tax as provided under the Act or at least on the last date of the financial year preceding the assessment year in question. If such liability arises subsequently when the last date of payment of advance tax or even the last date of the Financial Year preceding the assessment year is over, it is inappropriate to suggest that still the assessee had the liability to pay 'advance tax' within the meaning of the Act. [Para 9] In the instant case, the last date of the relevant financial year was 31-3-2001 and on that day, admittedly, the assessee had no liability to pay any amount of advance tax in accordance with the law then prevailing in the country. Consequently, the assessee paid no advance tax and submitted its regular return on 31-10-2001 within the time fixed by law wherein it declared Us total income and the book pro/it both as nil. However, consequent to the amendment of the provisions contained in section 115JB by virtue of the Finance Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mportant to note that section 234B imposes interest, which is compensatory in nature and not as a penalty - Union Home Products Ltd. v. Union of India [1995] 215 ITR 758. 7661 (Kar). Secondly, although section 191 of the Act is not overridden by sections 192, 208 and 209{1)(a)( d) of the Act, the scheme of sections 208 and 209 of the Act indicates that in order to compute advance tax the assessee has to, inter alia, estimate his current income and calculate the tax on such income by applying the rates in force. That under section 209(1 }(d) the income-tax calculated is to be reduced by the amount of tax which would be deductible at source or collectible at source, which in this case has not been done by the employer company according to the law availing for which the assessee cannot be faulted. As stated above at the relevant time there were conflicting decisions of the Tribunal. A bona fide dispute was pending. The assessee had to estimate his current income- The words used under section 209(1 )(a) make the assessee estimate his current income and since a bona fide dispute was pending, imposition of interest under section 234B was not justified without hearing and witho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment u/s 143(3) of the IT Act. On perusal of assessment order in the case of appellant for the above year which is under consideration it is seen that issue regarding non granting of credit for TDS has not been discussed anywhere in such assessment order. In my opinion the issue with regard to non granting of credit of TDS is arising from the intimation u/s 143(1) and not from the order u/s 143(3) of the Act and therefore above ground of appeal no.12 cannot be entertained at this place and therefore, such ground of appeal of the appellant is hereby dismissed. 54. We further observe that assessee has been granted short TDS on 2 accounts (1) Through less credit of ₹ 3046921/- being the difference between TDS claimed by assessee at ₹ 34245870/- and as against TDS granted by Assessing Officer at ₹ 31198949/-. (2) Ld. Assessing Officer not accepting the claim of additional TDS of ₹ 722870/- as the certificates were received at a later date. In the given circumstances we find it to be justified for remitting back the issue of TDS credit claimed by assessee at ₹ 34245870/- and further claim of ₹ 722870/- to the file of Assessing Officer. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeal No. 195 of 2014 vide judgment dated 6th May, 2014 and no further appeal has been preferred by the Department. 57. On the other hand, ld. DR supported the order of Assessing Officer. 58. We have heard the rival contentions and perused the record. Ld. Assessing Officer while framing assessment order assessed the provisions written back at ₹ 34.93 crores approx. as income u/s 41(1) of the Act taking a view that reversal of provision during the year definitely resulted into income. We further observe that assessee during the course of assessment proceedings submitted that the impugned amount of ₹ 34.93 crores approx. represented write back of excess provision for doubtful debts created in the earlier years as per norms of R.B.I and original provisions were made in the years when NDDB was not liable to income-tax as per section 64 of the NDDB Act and, therefore, the said amount cannot be brought under tax. Ld. AR further submitted that no deduction has been granted to it in the assessment year in which provisions were made and therefore the provisions written back during the year cannot be brought to tax. We further observe that ld. CIT(A) deleted the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in earlier year and not to a case where merely income is estimated as a percentage of estimated sales value. In the case of Tirunelveli Motor Bus Services Pvt. Ltd. vs. CIT (1970) 78 ITK 255, the Supreme Court held the view of Tribunal that no expense could be said to have been allowed in an assessment made by estimating appellant's income. Prior to AY. 2003-04, appellant was not a taxable entity as per the NDDB Act. Provision for bad debts/contingencies were made from A.Y. 1990-91 onwards. Upto A.Y. 2002-03, no assessment of the appellant took place and it cannot be said that the provision for contingencies were allowed as deduction in the 'assessments' of appellant upto A.Y. 2002-03. Assessing Officer has referred to Explanation 6 to section 43(6), i.e. the concept of deemed allowance. However, there is no such similar mechanism provided in section 41 (1) by the law makers. Concept of deemed allowance of an item of expenditure cannot be applied in section 41 (1) in the absence of such provision. Moreover, appellant was not even a taxable entity upto A.Y. 2002-03 and no assessment took place till then. Without 'assessment' in these years, section 41(1) cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s provision of earlier year written back as disallowed by the A.O for the year under consideration is also not correct and, therefore, I delete the same. Thus the second around of appeal of the appellant is allowed. 59. We further observe that similar issue came up before the Tribunal in asst. year 2007-08 in ITA No.3200 32001/Ahd/2010 and the decision taken by the Tribunal is reproduced below :- 32. The ground no.l is as under: J(i). On (he facts and in the circumstances of the case and in la\v, the learned CIT(A) erred in deleting the addition of ₹ 24,15,74.441/-u/s 41(1) of the Act being the provision written back without appreciating the fact that the entire entity was exempt horn tax up to A. Y. 2002-03, therefore, claiming the deduction by way of excess provision written back of earlier years, amounts to double deduction, which is not permissible as per provisions of the Act. l(ii). The Id.CIT(A) failed to appreciate the fact that the write hack of the provision can only be claimed as a deduction if it is proved by the assesses that the provision made in the earlier year was disallowed and subjected to tax. In the instant case, the assessee has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 41(1) of the Act. We therefore decline to interfere in the order of the learned CIT(A) on this issue. This ground is rejected. 60. The above decision of the Co-ordinate Bench was upheld by Hon. Jurisdictional High Court in Tax Appeal No. Tax Appeal No. 195 of 2014 vide judgment dated 6th May, 2014 wherein Hon. High Court has observed as under :- Facts are not seriously in dispute. Respondent-NDDB was enjoying exemption from payment of income tax till A..Y 2002-03. During the previous year relevant to A.Y 2007-08, the assessee wrote back certain provisions made in the earlier years. These provisions were made during the period when NDDB was enjoying the tax exemption. It is also not the case of the Revenue that the assessee made any allowances against any expenditure or trading liability. In background of such facts, we need to examine the view of the Tribunal. Section 41 of the Act pertains to profits chargeable to tax. Sub-section (1) of Section 41 provides that where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee and subsequently during any previous year, situatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es prior to Asst. Year 1998 1990-91 respectively when the assessee was not taxable entity and it cannot be said that the amounts were allowed as expenditure or as trading liability. There is no dispute to the fact that the parties have not claimed such amount. 65. Ld. AR further submitted that similar issue came up before the Tribunal and has been decided in favour of assessee. 66. We have heard rival contentions and perused the record. Through this ground Revenue is aggrieved with the order of ld. CIT(A) deleting the addition of ₹ 8,62,604/- made u/s 41(1) of the Act being prior period income. The impugned amount consists of ₹ 26,261/- relating to Year 1998 and ₹ 8,36,343/- pertained to Asst. Year 1990-91. It is not disputed that the amount of ₹ 8,26,604/- has not been claimed by the parties. The important point to be noted herein is that the assessee was not taxable entity upto Asst. Year 2002-03 and the impugned amount falls in the years before the date from which assessee becomes a taxable entity. We observe that ld. CIT(A) has deleted the impugned disallowance by observing as follows :- 12.3 The reasons for making the addition of ₹ 8,62 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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