TMI Blog2016 (11) TMI 1558X X X X Extracts X X X X X X X X Extracts X X X X ..... rning tax free income - reliance is placed on the judgement Hon’ble Bombay High Court in the case of CIT Vs. Reliance Utilities and Power Ltd [2009 (1) TMI 4 - BOMBAY HIGH COURT] where in it is held that if there were funds available both interest free and overdraft and or loans taken, then presumption would arise that investment would be out of the interest free funds generated or available with the company if the interest free funds were sufficient to meet the investments - hence no disallowance u/s 14A shall be made. - ITA No.1703/PN/2014 - - - Dated:- 30-11-2016 - Shri R.K. Panda, AM And Shri Vikas Awasthy, JM Assessee by : Shri Sunil Pathak Shri R.S. Abhyankar Revenue by : Shri Anil Kumar Chaware, CIT ORDER Per R.K.Panda, AM : This appeal filed by the assessee is directed against the order dated 31-03-2014 of the CIT(A)-II, Pune relating to Assessment Year 2005-06. 2. The Ld. Counsel for the assessee at the time of hearing did not press grounds of appeal No.1 3 for which the Ld. Departmental Representative has no objection. Accordingly, the above two grounds are dismissed as not pressed . 3. Ground of appeal No.2 by the assessee reads ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ginal return of income submitted on 30-06-2005 as the return of income filed in response to notice u/s.148. Along with the said letter the assessee filed a revised computation of income wherein the additions made in the order passed u/s.143(3) which were agreed by the assessee company were not contested. The additions contested before the Tribunal were not offered to tax or claimed as allowable to keep the issue alive. 8. So far as the additional income declared u/s.132 is concerned it was submitted that the said amount of ₹ 1,17,88,000/- declared by Dr. Cyrus Poonawalla, Chairman and Managing Director in his statement u/s.132(4) dated 20-07- 2011 as additional income is to be allowed as business expenditure. It was argued that the aforesaid amount represent the part of declaration made by Dr. Cyrus Poonawalla. The amount has been spent/incurred wholly and exclusively for the purpose of business and the expenditure had been incurred to ensure smooth running of business without being affected by the disputes between CSP Group ZSP group. It was submitted that the assessee company is one of the parties referred to in the family settlement and have incurred these expenses to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated by assessee itself that expenditure incurred in bunglow in order to ensure the smooth running of business without being affected by the disputes between CSP Group ZSP Group. Assessee company is one of the parties referred to in the family settlement and have incurred these expenses to protect their businesses from losses and damages arising out of family disputes and litigation. During search action, it was observed that this expenditure was incurred to provide benefit to family via investment made in bunglow, and it has nothing to do with business of assessee and there is no commercial expediency. When these facts confronted with Dr.C.S. Poonawalla u/s 132 on 20.07.2011, he agreed to withdraw claim of expenditure incurred on bunglow. It appears, that assessee is now referring case laws and other facts to get immunity from penalty only. 10. Before CIT(A) the assessee contended that the expenses incurred on the bungalow formed a part of the family arrangement as agreed upon between the two brothers to ensure smooth functioning of the operations of C.S. Poonawalla group (CSP in short) and Z.S. Poonawalls group (ZSP in short) group. Referring to the statement of Dr. Cyrus Po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up offers the same to tax, it will amount to double taxation. It was contended that the Assessing Officer disregarded the claim of business expenditure stating that there is no commercial expediency in making the expenditure without appreciating that the amount declared as income is nothing but forming part of the family arrangement which is with the intention to settle the dispute and not to circumvent the provisions of law. 13. However, the CIT(A) also was not satisfied with the explanation given by the assessee and upheld the action of the Assessing Officer by observing as under : 3.7 The appellant in Ground No.1 has contested that expenditure of ₹ 1,17,88,000/- in incurred on repairs, renovation of bungalow located at 70, Koregaon Park be allowed Koregaon Park be allowed as the impugned expenditure is part of family arrangement to ensure smooth running of business. The fact of the case is that a search action was carried out in the case of the Poonawala group on 21-06-2011 and the appellant being one of the entities of the group. During the said search action disclosure was made by the group in its various group concerns and out of the said disclosure, an amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the internal furnishing, which appear to have been spent by the other group i.e. ZSP group. The appellant's contention that the said arrangement was .with the intention to settle the dispute also do not get answered by any such instance pointed out by the appellant. The said arrangement between the two families i.e. CSP and ZSP is for equitable allocation of control of the various entities viz. company firms/assets so as to avoid any likely differences and disputes for the future generation i.e. with respect to the children of the two brothers as is evident from the clauses and wordings of the family arrangement dated 22.08.2002. The appellant has raised various legal issues relating to the incurrence of the said expenditure which may be acceptable in a situation and case of normal/regular course of business. The appellant in the present case has offered the aforesaid sum as additional income voluntarily during the course of search action based on the notings made on the seized document however, now the appellant has changed its stance after a gap of substantial time period, which is not based on sound reasoning. The appellant has also not been able to bring on record any such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that the assessee has purchased the shares from Z.S. Poonawalla. After the said purchase Mr. Z.S. Poonawalla is now a nominal shareholder and not a substantial shareholder. Referring to page 8 of the settlement deed he drew the attention of the Bench to clause 14 which states that the Bungalow at 70, Koregaon Park, Pune will be fully constructed at Serum Institute s account except for internal furnishings. 17. Referring to page 25 of the copy of the order passed by the Hon ble Settlement Commission he submitted that the Hon ble Settlement Commission in the said decision has held that the said amount cannot be taxed in both the hands. Referring to the statement recorded u/s.132(4) of Dr. Cyrus Poonawalla on 25-06-2011 copy of which is placed at pages 18 to 26 of the paper book he drew the attention of the Bench to his answer to question No.6 where Mr. Cyrus Poonawalls has stated that a total sum of ₹ 9,62,00,000/- has been incurred for the repair and renovation of Bungalow at 70, Koregaon Park, Pune for which the expenses have been debited in the books of the assessee company. Referring to the copy of the statement u/s.132(4) of Zavareh Soli Poonawalla on 21-07-201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by the assessee company on payment of premium for purchase of its own shares from warring group of shareholders is revenue in nature and allowable as deduction. Referring to the decision of the Hon ble Bombay High Court in the case of CIT Vs. Chemosyn Limited reported in 371 ITR 147 he submitted that the above decision of the Tribunal has been upheld by the Hon ble High Court. He submitted that the Bungalow does not belong to the assessee company. The ownership also does not belong to the assessee company. 19. Referring to the decision of the Hon ble Bombay High Court in the case of CIT Vs.Pruthvi Brokers and Shareholders Pvt. Ltd. reported in 349 ITR 336 he submitted that the Hon ble High Court in the said decision has held that even assuming that the Assessing Officer is not entitled to grant deduction on the basis of a letter requesting an amendment to the return filed, the appellate authorities are entitled to consider the claim and to adjudicate the same. It is not necessary that the deduction be allowed only if a revised return of income would have been filed. 20. Referring to the decision of the Mumbai Bench of the Tribunal in the case of Bambino Investment Tradi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the settlement was under the direction of the Company Law Board or High Court. However, in the instant case it is a smooth family arrangement. Therefore, those decisions are not applicable to the facts of the present case. 24. The Ld. Counsel for the assessee in his rejoinder submitted that this is very much business expenditure in the hands of the assessee. The Department taxes both the parties which is not correct. Since ZSP has already offered the same to tax in his settlement petition and the same has been taxed, therefore, taxing the same again in the hands of the assessee without allowing it as business expenditure will amount to double taxation, which is not correct. 25. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find during the course of search action in the case of Poonawalla group on 21-06-2011 an amount of ₹ 54.44 crores was offered as unaccounted and undisclosed income by the said group for the period from A.Y. 2005-06 to A.Y. 2012-13. The above disclosure of ₹ 54.44 crores i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any commercial expediency. 27. It is the submission of the Ld. Counsel for the assessee that because of the settlement between the two groups, the turnover of the assessee company has gone up to 25 times. Further, ZSP group has already offered the same to tax in their petition before the Settlement Commission. Therefore, taxing it in the hands of the assessee company will amount to double taxation. It is also his submission that the property does not belong to the assessee company. Merely because the assessee has made a statement u/s.132(4) by admitting the same as additional undisclosed income, the same is not binding on the assessee. It is also his case that in view of the decision of Hon ble Bombay High Court in the case of Pruthvi Brokers and Shareholders Ltd. an assessee can make a claim before the Assessing Officer through a letter. It is also his case that the concession given under mistaken fact or law is not binding on the assessee. 28. We find some force in the above argument of the Ld. Counsel for the assessee. We find the Hon ble Settlement Commission in its order dated 14-12-2012 on the basis of the application made by Poonawalla group at para 6.3 to 6.5 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We have considered the matter. In the first place, it may be mentioned that the above issue has been resolved due to admission made by Dr. CSP for its asscssability in the hands of PFAPL during the course of a statement recorded from him by the search party, i.e. in A.Y. 2012-13. Further, if the CIT s proposal assessment year-wise investment is considered, then there would be escapement of investment to the tune of ₹ 119.74 lakhs incurred upto 31.3.2004. Under the circumstances. we are of the considered opinion that the offer made by PFAPL for considering the entire investment made in the above bungalow amounting to ₹ 18,15,43,000/- for the asstt. Year 2012-13, as admitted by it, in the return of income for the above assessment year is quite fair and reasonable. We, therefore, settle the issue accordingly. 29. Since the entire amount has already been offered to tax by the ZSP group and the same has been accepted by the Hon ble Settlement Commission, therefore, taxing the same amount in the hands of the assessee will amount to double taxation. We, therefore, find merit in the submission of the Ld. Counsel for the assessee that the above amount should be allowed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... khs under section 43B of the Income-tax Act, 1961. The Assessing Officer had, therefore, now only to compute the assessee's tax liability which he must do in accordance with the orders allowing the assessee a deduction of ₹ 40 lakhs. 32. However, we find in the instant case the assessee has already made a claim before the Assessing Officer through a letter. In our opinion, the first objection of the Assessing Officer that the assessee itself has agreed in the statement recorded u/s.132(4) as additional income of the assessee for the impugned assessment year and therefore cannot be allowed as an expenditure and the same has not been reflected is misplaced. Since the issue involved is a pure question of law, a mere admission of the assessee is not binding on him in view of the decision of the Mumbai Bench of the Tribunal in the case of Bambino Investment and Trading Company Ltd. cited (supra) where it has been held that an appeal against assessment of concession is maintainable if it later transpires that concession was given on a mistaken impression of true legal position. The relevant observation of the Tribunal reads as under : 6. We have carefully considered the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not relieve the AO of his duty to examine whether the receipt is properly so assessable. In the judgment cited by the learned Departmental Representative (supra), the assessee admitted before the AO that he had no evidence to support his claim. There was no dispute that if there is no evidence to reconcile the discrepancies detected by the AO, the amount involved could be brought to tax. We are not concerned with a case where the assessee agreed to an addition on grounds of lack of evidence. We are concerned with a case where the assessee conceded that in law interest from debentures could be assessed as interest on loans and advances . This concession is of a legal position which does not bind the assessee. If it later transpires that the concession was given under a mistaken impression of the true legal position, the assessee could file an appeal and challenge the assessment. (emphasis supplied by us) 33. So far as the second objection of the Assessing Officer that these disputes were between the two brothers, therefore, the company need not incur the expenditure and claim the same as an allowable expenditure is concerned, we also do not find any merit in the same. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me. The respondent- assessee had claimed before the Assessing Officer that the amount of ₹ 6.81 crores (being the difference between consideration paid and face value of the shares acquired for cancellation) was revenue expenditure. This on the basis that in view of the dispute between its shareholders, the business was adversely affected and therefore, the payment was expected to be incurred for purposes of business. However, the Assessing Officer did not accept the same and held the expenditure to be of capital nature and disallowed the claim of revenue expenditure. 10. On appeal, the CIT(A) did not accept the respondent-assessee's contention and upheld the order of the Assessing Officer. On further appeal, the Tribunal by the impugned order set aside the order of the Assessing Officer and the CIT(A)'s orders by placing reliance upon its decision in Echjay Industries Ltd vs DCIT 88 TTJ (Mumbai) 1089 and on identical facts and circumstances the expenditure incurred by the assessee company to purchase its shares was held to deductible as revenue expenditure. An appeal from the order of the Tribunal in Echjay Industries Ltd (supra) was also dismissed by this Court. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decisions in the case of All Cargo Global Logistics Ltd. Vs. DCIT 147 TTJ 513 (Mum.) (SB). (b) failed to appreciate the fact that disallowance u/s.14A by the Assessing Officer in order u/s.143(3) r.w.s.147 amounts to change of opinion. (Refer para 7 page 15 to 21 of order u/s.143(3) r.w.s.147 Refer para 6.8 page 21 to 29 of the CIT(A) s order). 37. Facts of the case, in brief, are that the Assessing Officer during the course of assessment proceedings observed from the computation of income that the assessee has claimed ₹ 51,51,972/- as income exempt u/s.10 which consists of interest on tax free bond ₹ 47,36,986/- and dividend from domestic companies ₹ 4,14,986/-. The Assessing Officer asked the assessee to explain as to why proportionate expenditure should not be disallowed u/s.14A r.w. Rule 8D. It was explained that during the course of scrutiny assessment proceedings the same question was raised by the Assessing Officer and the assessee had explained in detail and no disallowance was made. However, the Assessing Officer rejected the above contention of the assessee and made disallowance of ₹ 10,53,561/- by applying provisions of section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .14A r.w. Rule 8D disallowed an amount of ₹ 10,53,561/- on the income of ₹ 51,51,972/- claimed as exempt u/s.10. We find in appeal the Ld.CIT(A) held that while provisions of section 14A are applicable, however, provisions of Rule 8D are not applicable. However, considering the totality of the facts of the case he held that 10% of the exempt income received as attributable to earning such exempt income. Therefore, he sustained the disallowance at ₹ 51,51,197/- and deleted the balance amount of ₹ 5,38,364/-. Revenue is not in appeal before us for the relief granted by the CIT(A). 42. It is the submission of the Ld. Counsel for the assessee that in the original assessment no disallowance was made. Further the own capital and free serves of the assessee company are more than the investments made. It is also his argument that only expenditure which has been proved to have been incurred in relation to earning of tax free income can be disallowed and section 14A cannot be extended to addition of such expenditure which is presumed to have been incurred for the purpose of earning tax free income. It is also the argument of the Ld. Counsel for the assessee that wh ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
