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The Commissioner Of Income Tax, Alwar. Versus M/s Gillette India Ltd. (formerly known as Indian Shaving Products Ltd.)

2017 (5) TMI 1499 - RAJASTHAN HIGH COURT

Allowance of fluctuation loss - method of accounting followed by the respondent company - Held that:- quarely covered by the decision of Supreme Court in the case of Commissioner of Income Tax vs. Woodward Governor India (P) Ltd. (2009 (4) TMI 4 - SUPREME COURT) thus the issues with regard to fluctuation loss are to be decided in favour of the assessee. - Provision of bad and doubtful debts - claim allowed - Decided in favour of assessee. - Excluding the provision for bad and doubtful de .....

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r doubtful advances, requires to be answered in favour of the revenue and against the assessee. See CIT. Versus ILPEA PARAMOUNT (P) LTD. [2010 (2) TMI 45 - DELHI HIGH COURT ] - Disallowance of sum incurred on building by holding the same to be of revenue nature - Tribunal deleted the addition - Held that:- Claim allowed of assessee as relying on CIT Versus Dr. AM Singhvi [2007 (8) TMI 265 - RAJASTHAN HIGH COURT] - D.B. Income Tax Appeal No. 65 / 2008, D.B. Income Tax Appeal No. 465 / 2008 .....

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2008 has framed the following substantial questions of law: 1. Whether under the facts and circumstances of the case and in law, the Tribunal was justified in allowing the fluctuation loss of ₹ 30,31,455/- on the basis of the Accounting Standard II and the method of accounting followed by the respondent company? 2. Whether the findings of the Tribunal are perverse in allowing the foreign exchange fluctuation loss specifically when the same could not be ascertained at the end of the financi .....

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) read with Section 36(2) of the Act? 5. Whether on the facts and circumstances of the case and in law the Tribunal was justified in deleting the disallowance of ₹ 5 lacs incurred on building by holding the same to be of revenue nature? 2.1 This Court while admitting the appeal No.465/2008 on 05.12.2008 has framed the following substantial questions of law: (i) Whether under the facts and circumstances of the case and in law, the Assessing Officer is justified to hold that the amount of &# .....

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s of law: 1. Whether under the facts and circumstances of the case and in law the Tribunal was justified in deleting the disallowanc of Rs,17,32,303/- on account of provision of bad and doubtful debts on the basis that the same was debited in profit and loss account without there being any evidence on record? 2. Whether the findings of the Tribunal are perverse in allowing the claim of provision of bad debts contrary to Section 36(1)(vii) read with Section 36(20 of the Act? 3. Whether on the fac .....

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. 3.1. A questionnaire was issued vide this office letter dated 27.2.2000 asking the assessee to furnish certain clarifications/details and documents. The assessee company attended the proceedings from time to time and filed its reply vide letters dated 8.11.2000, 10.12.2000, 20.10.2000, 13.02.2001 and 20.2.2001. The case was discussed with them. 3.2. The assessee company is engaged in the business of manufacturing and sale of Shaving blades, Rajors and other products as done in the earlier year .....

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any has claimed deduction u/s 43B towards payment of excise duty amounting to ₹ 2.50 crore on the basis of photo copy of challan enclosed with the return. 3.3. On scrutiny of the challan it is seen that it is deposited under the head miscellaneous and further it has been narrated that the deposit made under the protest in persuasion of investigation being carried out by DGAE, New Delhi. During the course of assessment proceedings, the AR of the assessee brought to notice allowability of Ex .....

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eration. 4. Counsel for the appellant has contended that the view taken by the Tribunal is contrary to the provisions of law and the issues are required to be considered in view of the decisions which have been relied upon by the counsel for the appellant. 5. Counsel for respondent Mr. Jhanwar has contended that the issue No.1 & 2 are squarely covered by the decision of Supreme Court in the case of Commissioner of Income Tax vs. Woodward Governor India (P) Ltd. (2009) 312 ITR 254 and both th .....

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). 7. Counsel for the department could not dispute the same. 8. Taking into account, as contended, the issues are required to be answered in favour of the assessee and against the department. 9. In appeal No.465/2008 the first issue regarding the amount shown as recovery of common services whether qualify for the purpose of deduction under Section 80HHC or not. Counsel for the appellant has taken us to the judgment of the AO wherein in para 3, the AO has observed as under: 3. The assessee compan .....

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sum of ₹ 19247604/- as share of common service expenses recovered. Vide order sheet entry no. 17 dated 28.5.2001, the A/R of the assessee company was asked to show cause as to why should not the common service exp. Be treated as other income for the purpose of section 80HHC of the IT Act. By Sr. No.10 of the order sheet entry of even date, the assessee was required to file justification regarding inclusion of other income for calculation of deduction u/s 80HHC. So Jai Kumar Tejwani appeare .....

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s and the same are reduced from the total expenses. In support of its conditions photo copies of certain agreements were also enclosed. On perusal of agreement held between assessee company had Gillette diversified operation Pvt. Ltd. (Oral B Division) New Delhi. It is seen that it was for payment of rent of ₹ 21,000/- p.m. against the use of space in officer at Delhi, Bombay and Calcutta, service charges ₹ 359750/- p.m. recovered from GDOP Ltd. (Brawn Division) Looking to the photo .....

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duction u/s 80HHC is as under:- Deduction= Profit of the business X Export turnover + 90% of export incentive X export turnover Total Turnover Total Turnover Now profit of business is worked out as under:- Gross Total Income before deduction u/s. 80 HHC Rs.186604444/- Add:- Additions as discussed in the order ₹ 87,15,713/- Rs.195320157/- Less: 90% of the following:- (i) other income as claimed Rs.36654147/- (ii) Recovery of common service exp. Rs.19247604/- (iii) Export Incentive Rs.230831 .....

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the arguments of the appellant and I find that the agreement in question are generally for sharing of common expenses by way of fixed charges per month. The appellant company has charged a fixed sum per month for providing services under these agreements. The AO, however, has mentioned in the assessment order that there was an agreements for letting out the premises owned by the appellant to Gillette Diversified Operations Pvt. Ltd., New Delhi according to which rent of ₹ 21000/- per mont .....

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ow section 80HHC(4B) of the IT Act. This rent recovered is to be excluded from the income of the appellant while calculating the deduction u/s 80HHC of the IT Act. Regarding the other agreements for reimbursement of expenses incurred on miscellaneous services it has not been established that they are in the nature of income by way of brokerage, commission and interest etc which are covered by explanation (baa) below section 80HHC(4B) of the IT Act. The AO was therefore not justified in treating .....

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receipts which can be treated as rent. 11. Counsel for the appellant has contended that the Tribunal in spite of specific contention raised has wrongly held in para 82 and 85 as under: 82. In this appeal, the department is aggrieved that the ld. CIT(A) has erred in directing the AO for not including the entire receipts of ₹ 1,92,47,604/- as Income from Other Sources by ignoring the fact that such receipts were for providing service on account of finance, personnel, secretariat, administra .....

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s argument and also we find nothing in the agreement which the AO. Has referred with regard to rent @ ₹ 21,000/- per month. In the absence of any material on record, the argument of ld. D/R cannot be accepted and we have no other alternative but to treat the entire recovery of expenditure as recovery of expenditure only and not the income from other sources. Hence, the decision of ld. CIT(A) in treating ₹ 21,000/- per month as rent reversed. 12. He has contended that the recovery of .....

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No.1 & 2 will be governed by the decision of issues No. 3 & 4 of the appeal No.65/2008. However, the issue No.3 is required to be reconsidered in view of the decision of Supreme Court in the case of Commissioner of Income Tax vs. HCL Comnet Systems & Services Ltd. (2008) 13 DTR 0105 wherein it has been held as under: 09. From the above, it is evident that the AO has to accept the authenticity of the accounts maintained in accordance with the provisions of Part II and Part III of Sche .....

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er, the AO has to make adjustment permissible under the Explanation given in Section 115JA of the 1961 Act. It may be noted, that the adjustments required to be made to the net profit disclosed in the profit and loss account for the purposes of Section 349 of the Companies Act are quite different from the adjustment required to be made under the Explanation to Section 115JA of the 1961 Act. For the purposes of Section 115JA, the AO can increase the net profit determined as per the profit and los .....

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added back to the net profit only if Item (c) stands attracted. Item (c) deals with amount(s) set aside as provision made for meeting liabilities, other than ascertained liabilities. The assessee's case would, therefore, fall within the ambit of Item (c) only if the amount is set aside as provision; the provision is made for meeting a liability; and the provision should be for other than ascertained liability, i.e., it should be for an unascertained liability. In other words, all the ingred .....

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ot;debt receivable" by the assessee. The provision for bad and doubtful debt, therefore, is made to cover up the probable diminution in the value of asset, i.e., debt which is an amount receivable by the assessee. Therefore, such a provision cannot be said to be a provision for liability, because even if a debt is not recoverable no liability could be fastened upon the assessee. In the present case, the debt is the amount receivable by the assessee and not any liability payable by the asses .....

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t (P.) Ltd. [2011] 336 ITR 54 (Delhi), while considering Clause (g) of Section 115JA of the Finance Act, in the year 2009 has made is retrospective with effect from 01.04.1998. Para 4 & 5 of the judgment of Delhi High Court reads as under: 4. The questions with regard to the provision for doubtful debts and provision for doubtful advances have to be answered in favour of the revenue and against the assessee because of the retrospective amendment introduced in Section 115JA of the said Act. B .....

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vision in respect of diminution in the value of asset. 5. Now, with the introduction of the said amendment with retrospective effect from 01.04.1998, the provision for doubtful debts and the provision for doubtful advances, which are nothing but provision for diminution in the value of asset, are specifically covered under clause (g) of the said Explanation. Consequently, the question insofar as it relates to provision for doubtful debts and provision for doubtful advances, requires to be answer .....

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