TMI Blog2021 (2) TMI 851X X X X Extracts X X X X X X X X Extracts X X X X ..... essee.We direct the assessee to file the relevant accounts/documents before the AO. Thus the 1st ground of appeal along with the additional ground is allowed for statistical purposes. Disallowance paid to Tata Sons Limited towards the subscription paid for The Brand Equity and Business Promotion(BEPB) Agreement - HELD THAT:- In the wake of new competitive environment and radical transformation of the business scene created by liberalization and globalization of trade and industry, it was felt that all Tata Companies should come under one umbrella and hence an agreement titled TATA Brand Equity Business Promotion Agreement was signed on 01.01.1999 and the assessee-company subscribed to the Brand Equity Scheme by paying premium @ 0.25% per annum. The said agreement was entered into between Tata Sons and Tata Chemicals (the assessee-company) to pool their resources and make a co-operative effort to promote a unified common Tata Brand which, collectively would match the Brand Equity of well known international brand names. Explaining the above, the Ld. counsel submits that the ITAT H Bench, Mumbai in assessee s own case for AY 2002-03 on similar facts has dismissed the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thing but a difference between cost of sales and MRP indicated by the Government; it is the subsidy amount which alone permits the manufacturer, like the present assessee to recover is uncovered cost of production including distribution cost and minimal margin allowed; it is only pursuant to the sale of fertilizer to the farmers would the assessee be eligible to receive subsidy; the fertilizer concession received by the assessee is nothing but part of sales proceeds, which cannot be excluded while working out profit u/s 80IB of the Act. Sales tax remission - it is the contentions of the assessee that it sold its products at notified prices and charged sales tax in the invoices ; in the books of accounts, sales tax collected was shown as sales tax incentive and not deposited the Government as per the Industrial Development Policy of the State; sales tax remission/subsidy is arising only on account of sales from fertilizers to the farmers, which clearly indicates that the sales tax remission has direct nexus with the activities of the industrial undertaking Having examined the materials available on record, we find that the AO has not examined in proper perspective the above co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e u/s 115JB, the Assessing Officer (AO) has made an addition of provision for bad and doubtful debts of ₹ 2,94,39,561/-. In appeal, the Ld. CIT(A) vide order dated 21.01.2011 held that in view of the amendment in the provisions of the relevant section, the AR did not press this ground. Hence, this ground is dismissed . 4. Before us, the Ld. counsel for the assessee submits that during the year under reference an amount of ₹ 2,94,39,561/- was provided in the books as provision for bad and doubtful debts . In the return of income, while computing income u/s 115JB, the said amount was not added back to the profit. It was mentioned by way of a Note in the return of income that provision for doubtful debts and advances is not added back while computing the book profits in view of the Bombay High Court s decision in CIT v. Echjay Forgings Pvt. Ltd. reported in 251 ITR 15 . The Ld. counsel relies on the decision in CIT v. Yokogawa India Ltd. (2012) 17 taxmann.com 15 (Karn.) stating that while computing book profits, provision made for bad and doubtful debts cannot be added back in accordance with Explanation (c) to section 115JB(1) as same is not an ascertain liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unted to a write off and such an actual write off was not hit by clause (i) of Explanation 1 to section 115JB. 5. On the other hand, the Ld. Departmental Representative (DR) supports the order passed by the Ld. CIT(A). 6. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. In Vijaya Bank (supra), relied on by the Ld. counsel, in the relevant assessment years 1993-94 and 1994-95, the AO disallowed the amount which the assessee-bank had reduced from loans and advances or debtors on the ground that the impugned bad debts had not been written off in an appropriate manner as required under the accounting principles. According to him, write off of each and every individual account under the head loans and advances or debtors was a condition precedent for claiming deduction u/s 36(1)(vii). On appeal, the Commissioner (Appeals) held that it was not necessary for the purpose of writing off of bad debts to pass corresponding entries in the individual account of each and every debtor; and that it would be sufficient if the debit entries were made in the profit and loss account and corresponding credit was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 115JA of the Act. The Hon ble High Court thus held : 4. The same fell for consideration before this Court in the case of CIT v. YOKOGAWA INDIA LTD. [2012] 204 Taxman 305 (Kar.). Therein, the judgment of the Apex Court in the case of Vijaya Bank v. CIT [2010] 190 Taxman 257/323 ITR 166 was considered, wherein the Apex Court considered the Explanation with regard to Item (c) of the Explanation of Section 115JA of the Act. It was held that a mere debit to the profit and loss account would constitute a bad and doubtful debt, but it would not constitute actual write off and that was the very reason why the explanation stood inserted. That prior to the Finance Act, 2001, the assessee would take the benefit of a deduction under Section 36(1)(vii) of the Act by merely debiting the impugned bad debt to the profit and loss account and, therefore, the explanation was added on to state that a mere reduction of profits by debiting the amount to the profit and loss account per se, would not constitute an actual write off. However, it was clarified that, besides debiting the profit and loss account and creating a provision for bad and doubtful debt, the assessee correspondingly/simultaneo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d before the AO that the same be allowable as a revenue expense. However, the AO was not convinced with the above explanation of the assessee on the ground that (i) the Company is a well known Tata group Company since 1939 having its own reputation as a house hold name ; the assessee had its own well-established logo which also discloses the Tata linkage of the company, (ii) the payment for premium is being made under a mandatory direction from the holding company and is for nonbusiness consideration and (iii) the agreement as referred is nothing but an arrangement to share profits with the holding company at a predetermined rate and any payment in perseverance to the said agreement is not allowable as an expense relating to the business of the Company. Accordingly, the AO had a disallowance of the above claim of ₹ 3,73,88,538/-. 8. In appeal, the Ld. CIT(A) affirmed the disallowance of ₹ 3,73,88,538/- with the following reasons : I have considered the facts of the issue and the submissions made by the AR. There is merit in AO's finding that the company is well known as a Tata Group Company since 1939 having its own reputation as a household name. Fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore, the Tribunal in AY 2002-03 affirmed the order of the Ld. CIT(A) deleting the addition made by the AO. Facts being identical, we follow the above order of the Co-ordinate Bench in assessee s own case and delete the addition of ₹ 3,73,88,538/- made by the AO. Thus the 2nd ground of appeal is allowed. 11. The 3rd ground of appeal The Ld. CIT(A) erred in confirming the disallowance u/s 80M/section 14A with a direction to rework the same in respect of indirect expenses. The assessee has filed an additional ground stating that the AO erred in adding back a sum of ₹ 7,45,00,000/- towards allocation of interest expenses towards dividend income, under the head business income . During the year under consideration, the assessee received dividend and income from units of mutual funds amounting to ₹ 12,73,84,631/-. Out of the same, it claimed an amount of ₹ 12,00,21,432/- (being dividend received from domestic companies) as deduction u/s 80M of the Act, without allocating any expense towards earning such income. During the course of assessment proceedings, the assessee explained before the AO that the main business is manufacturing and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following the order of the Hon ble Bombay High Court in the case of Godrej Boyce Mfg Co. Ltd. v. DCIT (ITA No. 626/10 and WP No. 785/10) held that : Since, it has been held in this case that rule 8D is only prospectively applicable, the same cannot be applied in the year under consideration. However, in that case, it has also been held by the Jurisdictional High Court that the disallowance u/s. 14A has to be made by the AO on a 'reasonable' basis. Hence, the action of the AO in allocating expenses towards earning of exempt income (relating to deduction u/s. 80M) and making of disallowance u/s. 14A is confirmed albeit he would re-work out such allocation /disallowance u/s 14A on a reasonable basis keeping in view the findings given by the Hon ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd vs. DCIT (ITA No.626/10 and W.P. No.785/10); without resorting to the provisions of rule 8D as held by the Jurisdictional High Court in the above stated case. Hence, this ground is partly allowed with the above said directions to the AO. 13. Before us, the Ld. counsel submits that the surplus funds for past several years were deployed systematically for expansion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... March 2003 is ₹ 1,455.16 crores, whereas the Investment is ₹ 569.02 crores, as evident from the audited accounts for the year under consideration. Further, on identical facts, the Tribunal for AYs 1992-93, 1993-94 and 1994-95 has decided the issue in favour of the assessee. Facts being identical, we follow the above orders of the Co-ordinate Bench and allow the 3rd ground of appeal. Consequently, the related additional ground becomes academic in nature. 15. The 4th ground of appeal The Ld. CIT(A) erred in holding that 90 % of the following Miscellaneous Income: a. Interest on ICDs and Sundry Advances ₹ 7,97,21,078/- b. Town Income ₹ 1,08,97,055/- c. Miscellaneous Income ₹ 3,58,50,343/- should be excluded from the profits of the business for computing deduction u/s 80HHC. The Ld. counsel submits that the above ground of appeal is not pressed because of smallness. However, it is submitted by him that this should not be quoted as a precedent for other years. Having h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... April, 2002. After amalgamation, the assessee filed a revised return of income for the financial year 2002-03 relevant to the impugned assessment year, incorporating the working results of HLCL. In the revised return of income, section 80IB claimed was not made but the disclosure was made that the same will be claimed at the time of assessment. Accordingly, during the course of assessment proceedings for the impugned assessment year, vide letter dated 30.11.2005, section 80IB claim of ₹ 7,59,59,000/- (same as that claimed in original return of HLCL) @ 30% of the profits (this being the 4th year of claim) in respect of erstwhile HLCL was made. The audit report in Form No. 10CCB along with audited accounts of the new industrial undertakings duly certified by the chartered accountant were also filed. Before the revised return of income was filed by the assessee-company, notice u/s 148 dated 31.03.2005 was issued by the AO of the erstwhile HLCL. The AO having gone through the assessment records of AY 2002-03 of HLCL (earlier assessment year) noted that sales tax remission and price concession (subsidy) forming part of section 80IB claimed were rejected by the AO in that year. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. CIT(A) observed that the concessions being received from the Government is a step removed from the principal activity of the assessee-company namely-production and sale of fertilizer; it was not the industrial undertaking which yielded the subject income by way of sales tax concession but the scheme of the Government which made it possible for the assessee to receive those amounts and the existence of such a scheme was not an essential part of the industrial undertaking. Further dismissing the contentions of the assessee that the terms profits and gains derived from any business is wide enough to cover profits having indirect nexus with the industrial undertaking, the Ld. CIT(A) observed that the income from fertilizer concession is clearly relatable only to the Government scheme and not to the industrial undertaking per se; the contentions that the incentive provisions should be construed liberally would not mean that the incentives be allowed in respect of ineligible units. Referring to the order of the AO, wherein the case of M/s Hind Lever Chemicals Ltd. (AY 2002-03) is brought out to show how the assessee is not eligible for section 80IB deduction in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king out profit u/s 80IB of the Act. 19. On the other hand, the Ld. DR submits that the sales tax remission/subsidy has been received on account of the Scheme of the Government for setting up the industrial unit in backward district , hence, it is not the industrial unit from which this benefit was derived by the assessee but the Government s Scheme allowing such benefit, depending upon the location of the industry. Thus it is stated that the Ld. CIT(A) has rightly confirmed the order of the AO. Regarding the fertilizer subsidy, the Ld. DR submits that the concession by the Government was merely an aid to the assessee and there is no merit in the contentions of the assessee that fertilizer concessions being related to the sale of fertilizer products, flew directly from the operations of the industrial undertaking. Referring to the order of the Ld. CIT(A), the Ld. DR submits that it was not the industrial undertaking which yielded the subject income by way of sales tax concession but the scheme of the Government which made it possible for the assessee to receive those amounts and the existence of such scheme was not an essential part of the industrial undertaking. Referring t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s would the assessee be eligible to receive subsidy; the fertilizer concession received by the assessee is nothing but part of sales proceeds, which cannot be excluded while working out profit u/s 80IB of the Act; In respect of sales tax remission of ₹ 3.31 crores, it is the contentions of the assessee that it sold its products at notified prices and charged sales tax in the invoices ; in the books of accounts, sales tax collected was shown as sales tax incentive and not deposited the Government as per the Industrial Development Policy of the State; sales tax remission/subsidy is arising only on account of sales from fertilizers to the farmers, which clearly indicates that the sales tax remission has direct nexus with the activities of the industrial undertaking Having examined the materials available on record, we find that the AO has not examined in proper perspective the above contentions of the assessee. As the above contentions have a direct bearing on the above ground of appeal, we set aside the order of the Ld. CIT(A) on the above issue and restore the matter to the file of the AO to pass an order afresh on the above 5th ground along with the additional ground ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. In cases where returned loss is reduced or assessed as income, the tax effect would include notional tax on disputed additions. In case of penalty order, the tax effect will mean quantum of penalty deleted or reduced in the order to be appealed against. At para 13 of the said Circular, it has been mentioned that: 13. This Circular will apply to SLPs/appeals/cross objection/references to be filed henceforth in SC/HCs/Tribunal and it shall also apply retrospectively to pending SLPs/appeals/cross objections/references. Pending appeals below the specified tax limits in para 3 above may be withdrawn/not pressed. 25. As a step towards further management of litigation, CBDT vide Circular No. 17/2019 has fixed the monetary limit for filing of appeals before ITAT at ₹ 50,00,000/-. 26. In the instant case, the disallowance made by the AO u/s 40A(9) is ₹ 84,50,252/-. Further, the AO has made an addition of share issue and preliminary expenses of ₹ 6,74,584/-. In the grounds of appeal filed by the Revenue against the order of the Ld. CIT(A), the above two amounts are agitated. The total quantum involved is ₹ 91,24,836/-. The tax rate (including surcharg ..... X X X X Extracts X X X X X X X X Extracts X X X X
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