TMI Blog2018 (1) TMI 790X X X X Extracts X X X X X X X X Extracts X X X X ..... r period expenses - Decided in favour of assessee Disallowance of interest paid on borrowed funds - assessee had diverted the borrowed funds for non-business purposes - Held that:- We find from the perusal of the balance sheet of the assessee company which is part of the paper book filed before us, that the assessee company is having sufficient own funds in the form of share capital and reserves and surplus to the tune of ₹ 9,02,06,003/- which is higher than the loans taken by the assesse company. Hence the presumption could be drawn in favour of the assessee that the interest free funds were given out of the own funds available with the assessee company. See CIT vs Britannia Industries Ltd [2005 (6) TMI 19 - CALCUTTA High Court]. - Decided in favour of assessee. Disallowing the claim of bad debts written off in respect of debts pertaining to Jute division - Held that:- out of the total debtors of the assessee company in the sum of ₹ 5,92,08,719/- as on 31.3.1993, a sum of ₹ 2,92,65,884/- represents old balances, out of which debts representing ₹ 16,43,829/- had been written off in the books of accounts as bad debt. Hence it clearly proves that the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Year 2001-02 is allowed for statistical purposes. Non treating the receipt of other income as composite income of the assessee - Held that:- AO ought not to have treated the aforesaid receipts as other income and hence not part of composite income of the assessee merely based on admission of the assessee. Getting into the merits of each item of receipt, we find that the receipt towards sale of tea waste, rent realized and tea claim realized, would be eligible to be forming part of composite income of the assessee based on the decision of this tribunal dated 11.9.2015 supra and by the decision of ld CITA in assessee’s own case for the Asst Year 2009-10. As far as other items of receipts are concerned, no details were furnished by the assessee and no business nexus of those receipts with the tea business were proved by the assessee. Hence we hold that the same would have to be treated separately as income from other sources. For the sake of clarity, we would like to state the incomes forming part of composite income would be sale of tea waste, rent realized and tea claim realized. The other receipts i.e sale of assets and sundry receipts would have to be treated as income from o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lies made upto 31.3.1992 amounting to ₹ 10,62,008/-. Accordingly the ld AO sought to disallow the same on the ground that the same does pertain to Asst Year 1992-93 and not Asst Year 1993-94, being the year under appeal as the assessee is following mercantile system of accounting. The ld AO observed that the assessee pursuant to mercantile system of accounting followed by it, ought to have provided for the said interest in its books and claimed the same as deduction in Asst Year 1992-93. Accordingly, the ld AO disallowed the same as expenditure not pertaining to the year under appeal. This action of the ld AO was upheld by the ld CITA. Aggrieved, the assessee is in appeal before us on the following ground:- 1. a) That the Ld. CIT(A) erred in upholding the addition of ₹ 10,62,007/- made by the Ld. AO on account of interest paid to suppliers. The addition is unjustified and the same needs to be deleted. 2.2. We have heard the rival submissions and perused the materials available on record. The facts stated hereinabove remain undisputed and hence the same are not reiterated for the sake of brevity. It is not in dispute that the assessee had indeed made payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ported in (2011) 339 ITR 382 (Del) . In view of these facts, we have no hesitation in directing the ld AO to delete the disallowance made on account of prior period expenses of ₹ 10,62,008/- . Accordingly, the Ground No. 1 raised by the assessee is allowed for Asst Year 1993- 94. 3. The next issue to be decided in this case is as to whether the ld CITA was justified in upholding the disallowance of interest paid on borrowed funds on the ground that the assessee had diverted the borrowed funds for non-business purposes to the tune of ₹ 3,09,095/-, in the facts and circumstances of the case. 3.1. The brief facts of this issue is that the ld AO observed that the assessee had given interest free loans to the following parties :- Nandanam Estates Pvt Ltd - ₹ 2,40,000/- Sripadam Investments Ltd - ₹ 4,87,160/- Sangam Investments Ltd - ₹ 9,90,036/- ₹ 17,17,196/- The ld AO show caused the assessee as to why the proportionate interest should not be disallowed to the extent of interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly, the Ground No. 2 raised by the assessee is allowed for Asst Year 1993-94. 4. The last issue to be decided in this appeal for Asst Year 1993-94 is as to whether the ld CITA was justified in upholding the action of the ld AO in not allowing the claim of bad debts written off in respect of debts pertaining to Jute division of the assessee in the facts and circumstances of the case. 4.1. The brief facts of this issue is that the assessee claimed a sum of ₹ 16,43,829/- towards bad debts written off in respect of debts pertaining to its erstwhile Jute division . The ld AO observed that during the year that no business was carried out in Jute division and that the said division had been closed long back. Moreover, the assessee had not proved the fact of income being offered in respect of those debts in terms of section 36(20 of the Act in order to justify the claim of deduction towards bad debts written off u/s 36(1)(vii) of the Act. Accordingly, the ld AO proceeded to disallow the claim of bad debts written off in the sum of ₹ 16,43,829/- in the assessment. This action of the ld AO was upheld by the ld CITA. Aggrieved, the assessee is in appeal before us on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undry debtors had been merged with the sundry debtors of tea division of the assessee company. In view of these facts, we hold that the assessee company had indeed complied with the requirements of section 36(2) of the Act in the instant case and is accordingly entitled for deduction u/s 36(1)(vii) of the Act. Accordingly, the Ground No. 3 raised by the assessee is allowed for Asst Year 1993-94. ITA No. 302/Kol/2016 Asst Year 2001-02 5. The first issue to be decided in this appeal is as to whether the ld CITA was justified in upholding the disallowance of ₹ 3,02,480/- towards provision for leave encashment in the facts and circumstances of the case. 5.1. The brief facts of this issue is that the assessee made provision for leave encashment to the tune of ₹ 3,02,480/- and claimed the same as deduction which was sought to be disallowed by the ld AO by applying the provisions of section 43B(f) of the Act. According to ld AO, since the said claim represents only provision and not actually paid, the same is liable for disallowance u/s 43B of the Act. This action of the ld AO was upheld by the ld CITA. Aggrieved, the assessee is in appeal before us on the foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 13,73,901/- which is included in the total disallowance towards statutory dues of ₹ 86,34,152/-. 6.2. Before the ld CITA, the assessee submitted the unaudited profit and loss account of packaging division furnishing the details of purchases, sales, statutory dues of packaging division among other items pertaining to that division. It was also pleaded that since separate disallowance towards statutory dues was already made by the ld AO, the disallowance of total loss of packaging division would amount to double addition to the tune of ₹ 13,73,901/-. This was not considered by the ld CITA and action of the ld AO was upheld by the ld CITA. Aggrieved, the assessee is in appeal before us on the following ground:- 2. That the Ld. CIT(A) grossly erred in confirming the action of the ld. AO in not allowing the set off of business loss of the Packaging Division of the assessee with the business income of the assessee. The action of the Ld. CIT(A) in upholding the same is unjustified under the facts and circumstances of the case. The loss from packaging division needs to be allowed to be set off from the business income of the assessee. 6.3. We have heard the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eating the receipt of other income as composite income of the assessee, in the facts and circumstances of the case. 8.1. The brief facts of this issue is that the assessee is engaged in the business of cultivation, manufacturing and marketing of tea. The ld AO observed that the assessee company had earned the following other incomes for the Asst Years 2011- 12 and 2012-13 :- Nature of Income AY 2011-12 AY 2012-13 Sale of Tea Waste 18,21,034 17,72,650 Sale of Assets 40,642 4,42,367 Rent Realised 81,200 29,700 Tea Claim Realised 7,01,601 16,91,679 Sundry Receipts 10,11,173 72,42,935 Total 36,55,650 1,11,79,331 The ld AO observed that for the aforesaid incomes, Rule 8(1) is not applicable and hence not composite income and the same would get separately taxed as income from other sources. Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... composite income. ( b) That the Ld. CIT(A) erred in upholding the impugned addition. He failed to take cognizance of the fact that an assessment has to be made in accordance with law after allowing necessary deductions/exemptions even if the same was not claimed by the assessee. Therefore, the action of the ld. AO and Ld. CIT(A) is not justified under the facts and circumstances of the case. Hence, the addition needs to be deleted. 2. That the petitioner craves leave to add, alter, amend or withdraw any ground/s of appeal before or at the time of hearing. 8.2. We have heard the rival submissions. The ld AR argued that there is no estoppel against the statute and hence merely because a particular receipt was agreed to be treated in a manner favourable to the revenue during the course of assessment proceedings, the ld AO cannot take advantage of the ignorance of the assessee . He argued that it is the duty of the assessee primarily to tax the true and real income of the assessee. In support of his various propositions, he placed reliance on the decisions of Hon ble Jurisdictional High Court in the case of SAIL DSP VR Employees Association 1998 vs Union of India O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.2.1. He also placed reliance on the decision of ld CITA for the Asst Year 2009-10 in ITA No. 263/CIT(A)-2/2014-15 dated 4.11.2015 in assessee s own case wherein it was held that sale proceeds of scrap, sale of tea waste, sale of store items etc are to be treated as business income and hence would be part of composite income of the assessee. It is true that there is no estoppel against the statute and reliance in this regard has been rightly placed by the ld AR on the decision of the Hon ble Jurisdictional High Court in the case of SAIL DSP VR Employees Association 1998 vs Union of India Ors reported in (2003) 262 ITR 638 (Cal) , wherein it was held that :- The question of estoppel because of option exercised with eyes open to the subsequent modification cannot be sustained. What is not otherwise taxable cannot become taxable because of admission of the assessee. Nor there can be any waiver of the right otherwise admissible to the assessee in law. The chargeability is not dependent on the admission of or waiver by the assessee. Chargeability is dependent on the charging section, which needs to be strictly construed. Respectfully following the aforesaid ratio, we hold ..... X X X X Extracts X X X X X X X X Extracts X X X X
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