TMI Blog2019 (12) TMI 819X X X X Extracts X X X X X X X X Extracts X X X X ..... giving effect proceedings to Tribunal order for A.Y.2001-02. Hence, the workings of disallowance u/s.14A of the Act given by the assessee before the ld. AO towards disallowance u/s.14A of the Act in the sum of ₹ 59,06,284/- had become final and deserves to be upheld. Set off of unabsorbed depreciation of earlier years while deduction u/s.80IA - HELD THAT:- covered in favour of the assessee by the decision of the Hon ble Supreme Court in the case of ACIT vs. Velayudhaswamy Spinning Mills Pvt. Ltd [ 2016 (11) TMI 373 - SC ORDER] wherein the SLP filed by the revenue against the order of the Hon ble Madras High Court was dismissed by holding that loss in years earlier to initial assessment year which were already absorbed against profit of other business cannot be notionally brought forward and set off against profits of eligible business in the Initial Assessment Year as no such mandate is provided in Section 80IA(5) of the Act. It is not in dispute that A.Y.2006-07 is the Initial Assessment Year in respect of Jojo Bera unit in terms of Section 80IA(5) of the Act. It is not in dispute that Jojo Bera Unit is an eligible undertaking and is entitled for claim of deduction u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not been deducted at source by the assessee at the time of payment of retention amount was in respect of a solitary case of payment made to United Shippers Ltd, where payments were made during the year by the assessee without deduction of tax at source since adhoc payments were made without reconciliation of the amount finally payable to the party. The assessee had even submitted evidence that even in this case i.e. United Shippers Ltd, the short fall of tax amounting to ₹ 11,21,342/- was indeed remitted to the account of Central Government on 07/03/2006 which is before the end of the previous year relevant to A.Y.2006-07. We find that in any case, the ld. AO is absolutely not justified to take the figure of sundry deposits from the balance sheet and treat the same as retention money and thereafter treat 50% of the said sum as retention money. The entire exercise of the ld. AO is absolutely without any basis. We hold firstly that there is absolutely no default committed by the assessee in accordance with provisions of Chapter XVIIB of the Act in the instant case. Secondly, the figures taken by the ld. AO are totally incorrect. Hence, by all force, the disallowance u/s.40 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TA No.4070/Mum/2012 - - - Dated:- 29-11-2019 - Shri M. Balaganesh, AM And Shri Ram Lal Negi, JM For the Assessee : Shri Nitesh Joshi, Shri Milin Thakore and Shri Jayesh Desai For the Revenue : Shri R Manjunatha Swamy ORDER M BALAGANESH , AM : These cross appeals in ITA Nos.3452/Mum/2012 for A.Y.2006-07 2007-08 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-6, Mumbai in appeal Nos.CIT(A)-6/IT-134/2009-10, CIT(A)6/IT-279/2009-10, CIT(A)-6/IT.75/Rg.2(3)/12-13 respectively dated 20/03/2012, 21/03/2012 14/07/2013 respectively (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 12/12/2008, 24/12/2009 respectively by the ld. ACIT/DCIT 2(3), Mumbai (hereinafter referred to as ld. AO). 2. Let us take up the appeals filed by the assessee as well as the revenue with A.Y.2006-07. 3. Disallowance u/s.14A of the Act:- Ground No.1(a) and 1(b) of assessee appeal Ground No.2 of the revenue appeal 3.1. We have heard the riva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as practically adopted by the ld. AO in giving effect proceedings to Tribunal order for A.Y.2001-02. Hence, the workings of disallowance u/s.14A of the Act given by the assessee before the ld. AO towards disallowance u/s.14A of the Act in the sum of ₹ 59,06,284/- had become final and deserves to be upheld. We also held that the computation mechanism provided in rule 8D of the rules cannot be made applicable for the year under consideration as the same is applicable only from A.Y.2008-09 onwards. In view of the aforesaid observations, we hold that the disallowance u/s.14A of the Act should be restricted to ₹ 59,06,284/- for A.Y.2006-07. We find that the very same direction has been given by the ld. CIT(A) also in his order for the A.Y.2006-07, which in our considered opinion, does not call for any interference. Accordingly, the ground Nos.1(a) and 1(b) raised by the assessee are dismissed as not pressed and ground No.2 raised by the revenue is dismissed. 4. Set off of unabsorbed depreciation of earlier years while deduction u/s.80IA of the Act Ground Nos.2(a) to 2( c) of assessee appeal for A.Y.2006-07 4.1. We have hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly brought forward and set off against profits of eligible business in the Initial Assessment Year as no such mandate is provided in Section 80IA(5) of the Act. It is not in dispute that A.Y.2006-07 is the Initial Assessment Year in respect of Jojo Bera unit in terms of Section 80IA(5) of the Act. It is not in dispute that Jojo Bera Unit is an eligible undertaking and is entitled for claim of deduction u/s.80IA of the Act. We also find that the recent Circular issued by the CBDT vide Circular No.1/2016 dated 15/02/2016 also had endorsed the view taken in the case of Velayudhaswamy Spinning Mills supra and had directed the revenue to withdraw the said ground before various appellate forums. Respectfully following the aforesaid decision of Hon ble Supreme Court and CBDT Circular 01/2016, the ground Nos.2 (a) to 2 (c ) raised by the assessee are allowed. 5. Deduction on prepayment of debentures and its related impact while computing deduction u/s.80IA of the Act. Ground No.3(a) to 3(d) of the assessee appeal 5.1. We have heard rival submissions. The brief background of this issue is that the assessee prepaid debentures liability wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e High Court, the ld. AR argued that though this issue would be academic in nature at present, but if the revenue succeeds in High Court for A.Yrs 2004-05 and 2005-06, then adjudication of allowability of premium on prepayment of debentures in A.Y.2006-07 would become relevant. Hence, the ld. AR fairly pleaded only for a finding / direction in this regard in this year. The ld DR also fairly agreed in this regard for issuance of the said direction / finding in this order. We find lot of force in the fairness exhibited by both the parties before us that the issue under dispute before us would resume its life, in case if the revenue succeeds in its appeal before the Hon ble High Court. Hence, we direct the ld. AO accordingly to give life to the issue of allowability of deduction towards premium on prepayment of debentures based on the final outcome of the appeals of the revenue for the Asst Years 2004-05 and 2005-06. The ground Nos. 3(a) to 3(d) raised by the assessee are disposed off subject to the directions mentioned hereinabove. 6. Disallowance u/s.40A(9) of the Act in respect of payments made to local schools in the locality in which eligible undertakings are sit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loyees. The Tribunal thus allowed the assessee s appeal on this ground and deleted the disallowance. 6. Sub-section (9) was inserted to Section 40A of the Act by Finance Act, 1984 with the retrospective effect from 1st April, 1985 and reads as under:- (9) No deduction shall be allowed in respect of any sum paid by the assessee as an employer towards the setting up or formation of, or as contribution to, any fund, trust, company, association of persons, body of individuals, society registered under the Societies Registration Act, 1860 (21 of 1860), or other institution for any purpose, except where such sum is so paid, for the purposes and to the extent provided by or under clause (iv) (or clause (iva) or clause (v) of subsection (1) of section 36, or as required by or under any other law for the time being in force. 7. In plain terms, sub-section (9) of section 40A disallows deduction of any sum paid by an assessee as an employer towards setting up of or formation of or contribution to any fund, trust, company etc. except where such sum is paid for the purposes and to the extent provided under clauses (iv) or (iva) or (v) of subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted (within the limits laid down under the relevant provisions) to a recognized provident fund or an approved gratuity fund or an approved superannuation fund or for the purposes of and to the extent required by or under any other law. 16.3 With a view to avoiding litigation regarding the allowability of claims for deduction in respect of contributions made in recent years to such trusts, etc., the amendment has been made retrospectively from 1st April, 1980. However, in order to avoid hardship in cases where such trusts, funds, etc. had before , 1st March 1984, bonafide incurred expenditure (not being in the nature of capital expenditure) wholly and exclusively for the welfare of the employees of the assessee out of the sums contributed by him, such expenditure will be allowed as deduction in computing the taxable profits of the assessee in respect of the relevant accounting year in which such expenditure has been so incurred, as if such expenditure had been incurred by the assessee. The effect of the under-lined words will be that the deduction under this provision would be subject to the other provisions of the Act, as for instance, section 40A(5), which would o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses incurred by a society and, therefore, it did not constitute contribution under section 40A(9). Being aggrieved by the decision of the Tribunal, the Department has come in appeal. Findings on question No. 2: Bharat Petroleum Corporation is a Central Government undertaking. It has incorporated a club, essentially to carry on staff welfare activities. Under clause 28, Bharat Petroleum Corporation Limited had a right to issue directives to the club which were binding on the club. At times, the members of the club, who were the employees of Bharat Petroleum Corporation, took part in tournaments held outside the club premises like Times shield in cricket. On such occasions, the assesseeCorporation used to reimburse expenses incurred by the club. This is the finding of fact recorded by the Tribunal. In the circumstances, section 40A(9) is not applicable. No substantial question of law arises. Hence, our answer to the aforestated question No.2 is in the negative, i.e. in favour of the assessee and against the Department. 10. In case of Commissioner of Income-tax-LTU Vs. Indian Petrochemicals Corporation Limited, Division Bench of Bombay High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. CIT(A) in this regard. Accordingly, the ground No.1 raised by the revenue is dismissed. 8. Disallowance of discount on issue of Euro Bonds ₹ 18,88,103/- Ground No.3 for A.Y.2006-07 in revenue appeal 8.1. We have heard rival submissions and perused the materials available on record. We find that the assessee had issued 7.875% Euro notes (2007) and 8.500% Euro notes (2017) at a discount in A.Y.1998-99. The assessee has been consistently writing off the discount on issue of Euro notes over the period of the Euro notes in accordance with the decision of the Hon ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. vs. CIT reported in 225 ITR 802 and the same has been consistently allowed by the revenue from A.Yrs 1998-99 to 2003-04 under scrutiny assessment proceedings. However, we find that the ld. AO had disallowed the same during the year under consideration on the ground that the assessee in earlier year, when it had earned surplus from the same activity, the surplus was not offered for taxation stating that it is not in the nature of income. Hence, on the same analogy the disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at source on the same in terms of Section 194C of the Act. The ld. AO took the figure of sundry deposits that had been reflected in the page 20 of the paper book being the annual report of the assessee company wherein the figure of ₹ 18.31 Crores was reflected and the ld. AO adopted 50% of the said value as the amount retained by the assessee on which tax has not been deducted at source and accordingly, he made disallowance of ₹ 9.15 Crores u/s.40(a) (ia) of the Act in the assessment. 9.2. We find that the assessee had pleaded that the amount retained as retention money does not accrue to the payee in the year of retention. Since the amount is not taxable in the year of retention, there is no obligation on the part of the assessee to deduct tax thereon. We find that the assessee had further submitted that despite this view, the assessee had been generally deducting tax at source even on the retention amounts. The comments made by the Tax Auditors in the tax audit report that tax has not been deducted at source by the assessee at the time of payment of retention amount was in respect of a solitary case of payment made to United Shippers Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure of Remittance Rehman Rehman Hnq 148964 Professional charges Standard Poor Intl 573250 Annual surveillance fees Daniele Thripp Hailary 3218000 Arbitration cost Deloitte Touche 1 60930 Professional service charges Rehman Rehman Hng 38477 Professional fees Deloiffe 9006180 Tax due deligence service Moft McDonald Ltd. 1385663 Due deligence service The Energy Consulting 550000 Partial support in due deligence service The Energy Consulting 627524 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) had merely directed ld. AO to exclude those payments for which ITO International Transaction, TDS Range-2, Mumbai had held that tax need not be deducted in respect of payments made to certain parties. We find that the ld. AO cannot have any grievance on this direction as admittedly the ld. AO had been merely directed to follow the order passed by ITO International Transaction, TDS Range-2, Mumbai. It is also pertinent to note that the ld. AO had passed an order dated 13/05/2013 giving effect to the order of the ld. CIT(A) wherein he had merely followed the directions of ITO International Transaction, TDS Range-2, Mumbai and granted some relief to the assessee u/s.40(a)(i) of the Act. We find that assessee had not preferred further appeal to this Tribunal against the findings of International Transaction, TDS Range-2, Mumbai. Hence, we do not find any merit in the ground No.5 raised by the revenue and hence, the same is dismissed. 11. In the result, the appeal of the assessee for A.Y.2006-07 is allowed and appeal of the revenue for A.Y.2006-07 is dismissed. ITA No.3453/Mum/2012 (Assessee Appeal) (A.Y.2007-08) 12. The ground No.1 rai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (net). The said figure is arrived after adjusting the prior period income of ₹ 3,21,58,498/- from the prior period expenses of ₹ 5,87,01,833/-. When query was raised in this regard, the assessee vide letter dated 30/10/2009 submitted as under:- ''In accordance with the method of accounting regularly followed by the appellant items of expenditure / income of earlier years are debited / credited to separate accounts and disclosed as Net adjustments in respect of previous years in the profit and loss account. These items include normal under / over accruals and items which, although they relate to an earlier year, materialised or crystallised during the year or which arose on account of an event during the year. It may be clarified that though for the year under reference, the net adjustments result in a debit amount which has been claimed as a deduction, in years where the net adjustments result in a credit amount, the same has also been offered for tax. In fact, there are credit items during the year under reference pertaining to prior years. This method has been consistently followed over the years and has been accepted at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er:- B. Whether on the facts and in the circumstances of the case and in law, the Tribunal was correct in confirming the order of CIT(A) in deleting the disallowance of ₹ 92,91,343/- made by the Assessing Officer on account of prior period expenses? 20.4. The Hon ble High Court held as under:- 4) Regarding Question B : (a) In its return of income for assessment year 2004-05 while declaring total income of ₹ 100.76 crores the Respondentassessee claimed an expenditure of ₹ 92.81 lacs as prior period expenses. The Assessing Officer disallowed the expenditure relating to prior period on the ground that as the respondent followed mercantile system of accounting expenditure relatable to an earlier year cannot be allowed as deduction in the assessment year under consideration. Thus an amount of ₹ 92.81 lacs was added to the income of the Respondent-assessee. b) In appeal, the CIT(A) held that the method of accounting consistently followed since many years by the respondent was that expenses were claimed as a liability as and when the bills were received even though the work was done in earlier year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not been shown to be perverse. In view of the above we see no reason to entertain question B as the same does not raise any substantial question of law as it is essentially a finding of fact arrived at by two authorities concurrently. 20.5. In the instant case also there is no dispute that the entire expenses got crystallized during the year under consideration and hence, we do not find any infirmity in the order of the ld. CIT(A) granting deduction towards prior period expenses to the assessee. Accordingly, ground No.3 raised by the revenue is dismissed. 21. The ground No.6 raised by the revenue for A.Y.2007-08 is as under:- 6. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in directing the AO to rectify the mistakes after verification inspite of the fact that ld. CIT(A) not specifically giving finding about the mistake related to double disallowance. 21.1. We have heard rival submissions. We find that this issue arises with regard to reduction of a sum of ₹ 2,44,86,356/- being the amount of premium on prepayment of debentures attributable to the eligible undertaking acco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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