TMI Blog2018 (8) TMI 1250X X X X Extracts X X X X X X X X Extracts X X X X ..... and will entitle to claim for higher depreciation. - Claim of the assessee allowed. Addition of late payment compensation charges on non performing assets. - the assessee is following method of accounting whereby it is accounting interest and late payment charges on NPAs on accrual basis; however, for the purpose of taxation, the same is considered on receipt basis - Held that:- AO has made addition towards late payment compensation charges on accrual basis and also made similar addition on said charges on receipt basis in the subsequent financial years. Since we have already directed the AO to make addition towards late payment compensation charges on receipt basis in the year of receipt of such charges, addition made on accrual basis in the impugned assessment year is directed to be deleted. However, the fact with regard to the claim of the assessee that it has offered to tax such charges on receipt basis in AY 2002-03 are not clear from the orders of the lower authorities. - Mattered remanded back for verification. Decided partly in favor of assessee. - I.T.A No.1490/Mum/2012, I.T.A No.3523/Mum/2013, I.T.A No.1721/Mum/2012 And I.T.A No.4095/Mum/2013 - - - Dated:- 21-8- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance of ₹ 39,31,00,000 and further sum of ₹ 10 lakhs towards administrative and other expenses, disallowance of bad debts written off being principal amount due in respect of bill discounting, disallowance of excess depreciation claimed on motor lorries, motor buses and motor taxis, disallowance of excess depreciation claimed on software licence and denial of exemption claimed u/s 54EA of the Income-tax Act, 1961. 3. Aggrieved by the assessment order, assessee preferred appeal before the CIT(A). Before the CIT(A), assessee has filed elaborate written submissions on each and every addition made by the AO which has been reproduced by the Ld. CIT(A) in his appellate order. The Ld.CIT(A), for the detailed discussion in his appellate order dated 30-12- 2011 partly allowed appeal filed by the assessee, wherein he has deleted additions made by the AO towards bad debts written off on account of principal amount due in respect of bill discounting, disallowance of excess depreciation on motor lorries, motor buses and motor taxis and software licence and also addition made towards denial of exemption claimed u/s 54EA of the Act. The Ld.CIT(A), however, confirmed addition m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gned assets underlying lease agreements were very much in existence, that purchase consideration of assets was discharged by the assessee through banking channels, that copies of ihe cheques were a/so produced, that the tease transactions were completed as per all legally prescribed procedures, that it was a righiful owner of 'eased assets that rhe lessees had confirmed lhc ownership of assets, that they had not claimed depreciation in their books of account for purchase and lease of assets, that lease rentals earned by the assessee was offered to tax and same \vas assets by the AO.s in the ysar under0 consideration as well as in the subsequent AY.s. Here, we would like to discuss the matter of f.C.D.S Ltd.(supra).In that case the Hon'ble Apex Court has held as under : The provision on depreciation in ihe Income-lax Act, 1961, reads that the asset must be owned, wholly or partly, by the assessee and used for the purposes of the business . Therefore, it imposes a f twin requirement of ownership and usage for business for a successful claim under section 32 of the Act. The section requires that the assessee must use the asset for the purposes of business . It d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preciation on leased assets. 7. The next issue that came up for our consideration from assessee s appeal is disallowance of late payment penalty paid for delayed payment of sales-tax liability of ₹ 33,333. The Ld.AR for the assessee at the time of hearing submitted that considering the smallness of amount involved in dispute, she did not want to press the ground, but would keep open the issue be challenged at appropriate time, whenever required in the light of various judicial precedents including the decision of Hon ble Supreme Court in the case of Lachmandas Mathuradas vs CIT 254 ITR 799 (SC). Therefore, the ground taken by the assessee challenging disallowance of penalty paid for late payment of sales-tax is dismissed, as not pressed. 8. The next issue that came up for our consideration from assessee s appeal is disallowance of expenditure incurred in relation to exempt income. The facts with regard to the impugned dispute are that during the year under consideration, the assessee has earned dividend income of ₹ 45,14,29,050 and claimed as exempt u/s 10(34) of the I.T. Act, 1961. The assessee has not made any disallowance of expenditure incurred in relation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of' ₹ 15.82 Crore. The AO while giving effect to the order of Ld CIT(A) disallowed 5% of dividend income ids I4A of the Act. We have perused the financial statement of assessee as on 31.03.2002. The assessee was having Capital of ₹ 319.82 Crore and Reserve Surplus of ₹ 2145.24 Crore. Thus, the assessee has total Capital, and Reserve Surplus fund of ₹ 2465.06 Crore. The during the relevant financial year has made the investment of Rs. Crore. From the perusal of financial statement, we have noted that the interest free funds available with the assesses- are more than the investment made during the year. The Hon'ble Bombay High Cowl in Reliance Utility and Power Ltd (supra) held that where both the interest free funds and interest hearing funds are available and the interest free funds arc more than the investment made the presumption is that the investment is made out of interest free funds available with the assessee. The High Court further held that for the years for which Rule 8D is not applicable and in the event the AO is not satisfied with the working given by the assesses, the disallowance under section 14A has to be made on reasonable b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... EDP charges are in the nature of capital expenditure; but allowed depreciation as per the I.T. Act, 1961. During the course of hearing, the Ld.AR for the assessee submitted that she did not want to presss the ground taken challenging disallowance made by the AO for the reason that the AO has already allowed depreciation on such capital expenditure as per law. Therefore, the ground taken by the assessee is dismissed. 12. In the result, the appeal filed by the assessee is partly allowed. Revenue s appeal I.T.A No.1721/Mum/2012 AY : 2000-01 13. The first issue that came up for our consideration from revenue s appeal is disallowance of bad debts written off being principal amount due in respect of bill discounting. The assessee has claimed bad debt written off amounting to ₹ 14,80,73,023 which includes principal as well as interest. The AO has allowed bad debt written off in respect of interest expenses; however, disallowed principal amount on the ground that the assessee cannot claim any sum which is never credited to P L account. The AO further held that principal amount being asset in nature and not offered to tax in the earlier years, bad debt written off by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o not find any error in the order of the Ld.CIT(A); hence, we are inclined to uphold the findings of Ld.CIT(A) and reject ground taken by the revenue. 15. The next issue that came up for our consideration is disallowance of excess depreciation claimed on motor lorries, motor buses and motor taxis. The AO has disallowed depreciation claimed on assets being motor lorries, motor buses and motor taxis @40% on the ground that higher rate of depreciation is allowable only in cases where the assessee uses motor lorries, motor buses and motor taxis in the business of hiring. In this case, the assessee has used the assets in its own business, therefore, not eligible for higher depreciation and accordingly, allowed depreciation at normal rate of 25% being eligible for plant machinery and excess depreciation has been disallowed. 16. The Ld.AR for the assessee, at the time of hearing submitted that the issue is covered in favour of the assessee by the decision of ITAT, Mumbai in assessee s own case for earlier years in ITA No.5365/Mum/2001, wherein under similar set of facts, ITAT deleted addition made by the AO towards disallowance of excess depreciation. 17. Having heard both the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee has relied upon the decision of Hon ble Madras High Court in the case of CIT vs Vijay M Mahatani (2013) 35 Taxman.com 228 and also circular issued by CBDT vide circular No.26 of 1955. 20. We have heard both the parties and considered material available on record. The issue is squarely covered in favour of the assessee by the decision of Hon ble Madras High Court the case of CIT vs Vijay M Mahatani (supra), wherein the Hon ble High Court has held that the assessee can claim exemption u/s 54EC and then set off capital loss, if any. Even the board has clarified the issue in its circular No.26 of 1995 dated 07-07-1955 wherein it has been explained the manner of computation of set off of loss under one head and how it can be set off against income under another head, particularly when total income includes items of tax free income, as per which the board clarified that the department should adopt the method which will give the assessee maximum benefit. In this case, the assessee has first claimed benefit of exemption u/s 54EA against long term capital gain before setting off of long term capital loss. The claim made by the assessee is in accordance with the clarificatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r side, therefore, it may be restricted to 1% of dividend income. The assessee also filed calculation of such disallowance. We find that the disallowance quantified by the AO @2% of dividend income is on higher side and hence, we direct the AO to restrict the disallowance of administrative expenses to 1% of dividend income which works out to ₹ 23,96,493. 25. The next issue that came up for our consideration is disallowance of depreciation on computer software @25% instead of 60%. The Ld.AR for the assessee submitted that she did not want to press the ground taken to challenge disallowance of depreciation. Therefore, the same is dismissed, as not pressed. 26. The next issue that came up for our consideration from assessee s appeal is addition of late payment compensation charges on non performing assets. The AO has made addition of ₹ 5,64,44,000 towards compensation charges provided in the books of account on mercantile basis towards NPA on the ground that the assessee is following mercantile system of accounting and accordingly interest including any charges levied on loans and advances to be accounted on accrual basis whether the same has been received or not. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee s claim that it is considering interest and late compensation charges on NPAs in the year of receipt for AY 2002- 03. Since the AO has made addition on said receipts on accrual basis for impugned assessment year, further addition towards the same in the subsequent year on receipt basis amounts to double addition, which cannot be done. We find that the AO has made addition towards late payment compensation charges on accrual basis and also made similar addition on said charges on receipt basis in the subsequent financial years. Since we have already directed the AO to make addition towards late payment compensation charges on receipt basis in the year of receipt of such charges, addition made on accrual basis in the impugned assessment year is directed to be deleted. However, the fact with regard to the claim of the assessee that it has offered to tax such charges on receipt basis in AY 2002-03 are not clear from the orders of the lower authorities. Therefore, we set aside the issue to the file of the AO for the limited purpose of verification of facts that the assessee has offered to tax late payment compensation charges on receipt basis in AY 2002-03. If, the AO find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 31. The next issue that came up for our consideration is disallowance of interest expenditure u/s 37(1) for contravention of law. The AO disallowed interest @12% on loans and advances given to subsidiary companies of assessee for contravention of RBI guidelines in respect of Non Banking Financial Companies on prudential norms. According to the AO, the assessee has given loans and advances of more than 25% of assessee s own funds to a single entity, viz. M/s Nischal Investment Trading Company, a subsidiary company in contravention of Regulation 12 of NBFCs and non banking company s acceptance of public deposits Rules. The AO has taken clue from Notes of Accounts provided in financial statements which clearly states that the company has given more than 25% of its own funds to a single entity which is prohibited as per the guidelines issued by RBI to NBFC companies. It is the contention of the assessee that though the assessee has given loans and advances over and above prescribed limit provided, still, the Explanation to section 37(1) applies only to any expenditure which is not an expenditure covered under sections 30 to 36 and which is in the nature of expenditure incurred f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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