9911796707
TMI Blog2010 (11) TMI 1128X X X X Extracts X X X X X X X X Extracts X X X X ..... for assessment year 2001-02, ground No 2 in assessment year 2002-03, and ground No. 1 in the A.Y. 200405 are directed against the order of the CIT(A) deleting the disallowance of depreciation ₹ 9,04,59,142 in A.Y. 2001-02, ₹ 6,78,44,356 in A.Y. 2002-03 and ₹ 1,76,67,150 in A.Y. 2004-05. 3. At the outset, the Ld. AR submitted that this issue is covered in favour of the assessee by the consolidated order of this Tribunal dated 17-7-2009 in the case of the assessee itself in A.Y. 1999-2000 and 2000-01 in ITA Nos. 1987 and 3526/AHD/2003. Therefore, following the same, the ground of appeal of the revenue should be dismissed. The Ld. A.R. also submitted that the leased assets are the same which were leased out in the A.Y. 1999-2000 and 2000-01 and the lease rental have been received from the very same parties. 4. The D.R. submitted that although the submission made by the A.R. was correct, but in the earlier years, nobody examined the issue in question with the agreement for lease transaction to ascertain whether the lease in question was a financial lease or operational lease. 5. We have heard the rival submissions and perused the orders of the lower authorities and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdingly held that the AO was not justified in treating the transaction between the assessee and RSEB as paper transaction. The above finding of the CIT(A) has not been challenged by the revenue either by filing an appeal or in cross objection before the tribunal and as such has become final. (b) We have perused various documents, viz. i) Sale deed by RSEB in favour of the assessee executed on 20-9-95 copies of which have been given to us at page 1 to 5 of the paper book. ii) Invoice cum delivery challans given at page 6 of the paper book. iii) Notification issued by the Govt. of Rajasthan dated 18-3-95 wherein the Rajasthan Govt. had exempted from sales tax the sale of plant and machinery by RSEB to the assessee in public interest on the condition that the purchaser entered into a lease agreement with RSEB which was entered into as per a copy of lease agreement given to us at page 9 to 31 of the paper book. iv) Certificate for non claim of depreciation given by RSEB at page 32 of the paper book. A perusal of the above documents clearly indicate that the parties to the agreement have this transaction as transaction of sale by RSEB to the assessee and its subsequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly a financial transaction would not be proper. He further submitted that Hon. Rajasthan High court in CIT vs. Rajasthan State Electricity Board, 207 CTR 415 has held that sale cum lease back transaction entered into by RSEB were genuine and RSEB is entitled to deduction of lease rent paid by it. Thus, according to the Ld. AR in the case of RSEB the matter is settled by the Hon. Rajasthan High court. This decision of the Hon. Rajasthan High court has been followed by the Hon. Gujarat High Court in the case of CIT vs. Gujarat Gas Company Ltd. ["GGC" in short] in which case also sale and lease back transactions were entered into by Gujarat Gas Company Ltd. and RSEB and held that transactions entered into by GGC Ltd. were genuine and therefore the assessee was entitled to depreciation. Since facts of the present case are similar to the facts in the case of Gujarat Gas Co. [supra], there is no reason to take a different view. He submitted that ITAT 'C' bench in the case of Sandesh Ltd. vs. JCIT, in ITA No. 1946/AHD/2000 and others and held that transaction of sale and lease back by RSEB are genuine and the assessee is entitled to depreciation. 7. We have heard Ld. DR and Ld. AR and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rounds of appeal of the revenue for all the years under consideration. 8. Ground No. 2 of the appeal in A.Y. 2001-02, ground No. 3 in A.Y. 2002-03, and ground No. 2 in A.Y. 2003-04 of the appeal of the revenue are directed against the order of the CIT(A) deleting disallowance of ₹ 64,22,000 in A.Y. 2001-02, ₹ 56,79,197 in A.Y. 2002-03 and ₹ 53,67,735 in A.Y. 2003-04 on account of development expenditure. 9. At the time of the hearing, the Ld. AR of the assessee submitted that similar issue is covered by the order of the tribunal in A.Y. 1999-2000 in I.T.A. No. 1987/AHD/2003 wherein by its finding given in page 7 para 12 to 13, the issue has been restored back to the file of the AO. It was argued that in that year, the issue was restored back by the tribunal as the assessee had not furnished evidences in support of its claim. He submitted that in the years under appeal, the facts are different, as the assessee has filed all the details before the AO. Therefore, the issue should be considered and decided by the tribunal on merits. 10. On the other hand, the DR submitted that following the order of the tribunal for the A.Y. 1999-2000, the matter should be remanded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO that there is no direct co-relation between the amount of expenditure and number of subscribers, is also irrelevant for deciding the nature of expenditure or the allowability of the expenditure. For an expenditure being allowable, it is not necessary that the expenditure must have yielded immediate or quantifiable benefit to the assessee. In respect of the other argument of the revenue that expenditure was incurred gratuitously and not exclusively for the purposes of business, we find that it is not in dispute that the expenditure was incurred for giving benefit or gift to the subscribers of daily newspaper who paid the entire subscription of the year in advance. Thus, we find that the expenditure had a close nexus with the business of the assessee. No material was brought on record by the revenue to show that the expenditure in question was incurred for any other purpose except business consideration by the assessee. It is not the case of the revenue that the recipients of benefit were relatives of the assessee. Further, in our considered view, a business expenditure for being deductible, it is not necessary that the same must have been incurred under some compulsion. Voluntary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purpose or in the course of its business. Therefore, the same is not deductible u/s. 37 of the Act. As the sundry balances written off is not in the nature of bad debts written off, the same is also not deductible since the conditions laid down in sec. 36(1)(vii) and 36(2) are not fulfilled. Similarly, the AO also disallowed ₹ 21,03,604 out of ₹ 23,73,578 claimed by the assessee under the head 'sundry debit balance written off'. According to the AO, assessee claimed ₹ 23,73,578 by writing off sundry debtors. According to the AO, assessee claimed these written off as in the nature of 'kasar'. He observed that the writing off includes balances above ₹ 10,000 in respect of number of parties. The writing off includes ₹ 11,85,286 in respect of Technova Imaging Systems, ₹ 2,72,435 in respect of Woodluck Associates and ₹ 1,17,997 in respect of Om Roadways. According to the AO, such large amount of writing off cannot be in the nature of 'kasar'. He therefore allowed deduction only in respect of writing off which were less than ₹ 10,000 and disallowed the writing off which were in excess of ₹ 10,000. 16. On appeal, CIT (A) delet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d exdividend. In view of the AO these transactions of purchase and sale of units were employed as a device to avoid the tax on the short term capital gain earned by the assessee on certain other transactions. According to the AO, considering the time gap between the purchase and sale, which is the span of hardly two, three days and even one day in the case of Kotak, it cannot be denied that even at the point of time of purchase of these units the assessee was well aware as to the realizable value thereof after one/two or three days. In his view, the difference in the value of purchase and sale is not ascribable to market forces or fluctuation in the rate of securities etc. In spite of this pre knowledge the assessee chose to purchase the securities and sold the same after one day in certain cases and after two or three days in certain case and claimed to have sustained loss. The AO disallowed short term capital loss on these transaction of units and also derived support from the ratio of the Supreme court's decision in the case of McDowel & Co. v. CTO 154 ITR 148. 21. On appeal, the Learned Commissioner of Income Tax (Appeals) deleted the addition. 22. We have heard the rival sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the contention of the appellant's representative on this count is therefore valid and the addition made by invoking the same cannot be sustained and therefore directed to be deleted." 23. Before us both the parties admitted that the decision of the Learned Commissioner of Income Tax(Appeals) is covered by the recent decision of the Hon'ble' Supreme Court in the case of Commissioner of Income-tax, Mumbai v. Walfort Share & Stock Brokers (P.) Ltd., [2010] 192 TAXMAN 211 (SC). We find that in the instant case genuineness of the transaction entered into by the assessee for purchase and sale of units were not in doubt. Further, the assessment year involved is assessment year 2001-2002 wherein the provisions of newly inserted section 94(7) were not applicable. In absence of any material brought on record by the Revenue to show that the transactions of purchase and sale of units were sham, we do not find any error in the order of the Learned Commissioner of Income Tax(Appeals), which is also covered by the decision of the Hon'ble Supreme Court in the case Walfor Shares & Stock Brokers P. Ltd. (supra), wherein it has been held as under: "Even assuming that the transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO that in the immediately subsequent assessment year i.e 2003-04, the assessee company has given commission only @ 1% though in the immediately preceding year i.e 2001-02 the rate of commission was 3%. Thus, it was observed that the case falls within the ambit of sec. 40A(2)(b) of the I.T. Act and as the payment to ICL is excessive and unreasonable taking into consideration the benefits deserved and accrued to the assessee company and taking the rate of subsequent year i.e A.Y. 2003-04, he restricted the commission payment to the tune of ₹ 1,23,84,594 which was paid in the A.Y. 2003-04 and disallowed the remaining amount of ₹ 124,57,986. 27. Before the CIT (A), the assessee's representative Shri G K Choksi submitted as under:- "2.1 The appellant had made commission payment of ₹ 2,48,42,580 at the rate of 2% on total advertisement revenue of the company to the said Indian Chronicle Ltd. [ICL]. The Assessing Officer states that it was related concerns within the meaning of sec. 40A(2)(b). it is stated that the service rendered by the ICL were sort of scope of work mentioned in agreement. It is stated that thet activity carried out by the ICL were not related ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reciated in view of the particular fact that the payment is made as per the agreement entered into between the parties. 2.3 With reference to the above issue, the appellant further submits as under:- 1. The Assessing Officer has invoked the provisions of sec. 40A(2) and has held [towards the middle of page-5 of the assessment order just before the para marked 3.4] "that ICL is a related party within in the meaning of sec. 40A(2)(b) of the I.T. Act. For this inference the assessment order contains reasons in para marked 3.3 [starting from the bottom of page 4]. Therein the assessment order refers to a statement made in enclosure-4 of the audit report u/s. 44AB filed with the return. It is submitted firstly that the aforesaid audit report is at best an opinion expressed by an auditor who is neither assessee nor the Assessing Officer. His opinion is at best an expert's opinion which is binding neither on the assessee nor on the Assessing Officer. At any rate, assessee is entitled to resile subsequently from an earlier statement made in this regard as explained in paras 2, 3, 4 and 5 below. 2. Then the assessment order [on page 5] refers to assessee's letter dated 19-1-2005 for i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bt for the first time, did call for serious consideration. This was done to arrive at a correct decision in law relating to the liability to additional surcharge. If really addition surcharge was chargeable according to the Finance Act even in case the said sum of ₹ 19 represented business income, the High court cannot be called upon to act on the assumption that it is not so chargeable and answer the question stated. Such a course would neither be in the interest of law or of justice. That the revenue was also a party to the erroneous assumption of law makes little difference to the principle." 5. Obviously, the assessee's case is much stronger in so far as on a law point assessee is taking finally a stand [before the Assessing Officer himself] contrary to one which was taken by it in an earlier communication. The Assessing Officer cannot rely solely on the audit report or on the contents of the assessee's letter dated 19-12005 for holding that assessee is covered u/s. 40A(2)(b) as the assessee had categorically stated finally in letter dated 5-3-2005 in response to Assessing Officer's subsequently issued show cause notice dated 24-2-2005 that assessee is not covered by se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e's case. Note:- Section 40A(2)(b) is drafted in a somewhat involved fashion but the Ld. authors Chaturvedi & Pithisaria in their treatise, 5th edition, volume-2, on page 2424 have expressed it in a lucid and clear fashion by segregating those provisions according to the status of the payer assessee. Obviously in our case, it is company. Relevant part would read as follows:- "In case of an assessee who is Where payment is made to Company Any director of the company Any person [individual firm company AOP, HUF, etc] having a substantial interest [i.e. owning at least 20% voting rights on holding of equity shares] in the company Any person of which a director, partner or member has a substantial interest in the company. Any relative of any such director or person Thus, on this basis also assessee company is not caught by the mischief of sec 40A(2)(b). 7. Out of abundant caution, it may be emphasized that the contents of sec 40A(2)(b) law down an objective test so much so that even the lower limit of substantial interest is prescribed at 20% and further for the word 'relative' there is definition existing in clause [41] of sec. 2 of the I.T. Act. So, the applicability of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vious that the rate of commission was 3% in the immediately preceding year viz. A.Y. 2001-02 and it was 1% in wthe immediately succeeding year viz. 2003-04 against 2% of this year viz. A.Y. 2002-03 and the Assessing Officer has quantified disallowance on the basis of figures of the subsequent year. Apart from the fact that it is based merely on surmises and conjectures, the point is that ordinarily the preceding years' basis is adopted in framing an assessment. 12. Without prejudice, it is not a fit case for any disallowance whatsoever in view of the ratio decided of the Gujarat High Court decision in Voltamp Transformers P. Ltd. v. CIT [1981] 129 ITR 105 wherein even the increase in the amount of commission paid as compared to the preceding year was held as reasonable and allowance. 13. Actually, the Ld. authors Chaturvedi & Pithisaria in their tratise, 5th edition, vol. 2, on page 2427 have recorded in the context of that Gujarat High Court decision as follows:- "Considerations, relevant and irrelevant: In judging the unreasonableness or excessiveness of a particular payment for the purpose of sec. 40A(2)(a), it is essential that one should keep in mind the relevant conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 2003-2004. 30. On appeal, the Learned Commissioner of Income Tax (Appeals) deleted the above disallowance by observing as under: "2.2 I have carefully considered the submissions of the appellant and the facts brought on record by the AO. The first issue which is to be decided is whether ICL to whom the commission has been paid falls within the definition of sec. 40A(2)(b) of the Act. The appellant vide letter dated 3-5-2005 had mentioned before the AO that the said company does not fall u/s. 40A(2)(b) of the Act. As per provisions of sec. 40A(2)(b) in case of company, related company would be a company having substantial interest i.e. owning atleast 20% of the voting rights on holding of equity shares in the company or any director of the company or any person of which a director, partner or member which has substantial interest in the company or any relative of such director or person. The directors of both the companies are different. ICL is an independent company in which the appellant does not have any shareholding. Even ICL holds only 413 shares out of 7969 shares in the appellant company, which is much less than 20% shares in the appellant company. As per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant company and ICL and also perused the explanatory statement pursuant to sec. 173(2) of the Companies Act wherein it has been clearly mentioned that the company shall pay advertisement management fee not exceeding 3% per annum. As thet work of ICL was less in comparison to the earlier year or less than as specified in the agreement, the appellant company itself has given the commission only @ 2% to ICL which is less than maximum rate of 3%. It has been held by Gujarat High court in the case of Voltamp Transformers P. Ltd. v. CIT [129 ITR 105] that so far as the legitimate business needs of an assessee or the benefit derived by or accruing to the assessee from goods, services or facilities etc. are concerned, these are not to be judged from the view point of a revenue officer but from the view point of a businessman, it was further held that in judging the unreasonableness or excessiveness or a particular payment for the purpose of sec. 40A(2)(a), it is essential that one should keep in mind the relevant considerations only. It was also held by the Hon. Supreme court in the case of Aluminium Corporation of India Ltd. v. CIT [86 ITR 11 (SC)] that the commercial expediency is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee had claimed bad debts to the extent of ₹ 42,64,127 on account of amount given to Radhe finance in A.Y. 1997-98. It was observed by the AO that the main business activity of the appellant company is printing and publishing of newspaper and the interest income comprises 3% of the total income and the appellant company is not a NBFC and therefore, it cannot be said that money lent to Radhe Finance was given during the ordinary course of business. It was also observed by the AO that appellant is not eligible for deduction of claim of bad debt with regard to the principal amount because it is not engaged in the business of banking/money lending. The AO further observed that interest of ₹ 25,89,127 was offered for tax during A.Y. 97-98 only and in subsequent years no interest was charged and offered to tax an accordingly the amount which has been written off during the relevant A.Y. is basically principal amount and as the appellant is not engaged in business of banking/money lending it is not eligible for writing off the principal amount and accordingly disallowed a sum of ₹ 42,64,127. 34. The CIT (A) held as under:- "I have considered the submission o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount in question was an advance amount and the assessee was not engaged in financing business as per the Learned Assessing Officer, the amount cannot allowed as bad debts in view of the provisions of section 36(2) of the Act. On appeal, the Learned Commissioner of Income Tax (Appeals) deleted the above disallowance by observing as under: "I have considered the submission of the appellant and the facts brought on record by the AO carefully. As per provisions of sec. 36(ii) of the Income Tax Act, 1961 the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year will be allowed as deduction subject to provisions of sec. 36(2) of the Income Tax Act, 1961. As per provision of sec. 36(2) thet principal amount can be claimed as bad debt if the same has been given in ordinary course of business. The appellant has shown ₹ 7,43,26,426 as income from interest and the appellant is undoubtedly engaged in the financial services, lease, market advances, from which huge interest income has been shown from year to year. In earlier years also the appellant has shown bad debts which have been allowed by CIT(A) in A.Y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er contended that the amount was not allowed because it has not been shown by the assessee to have become bad in the year under consideration rather the ground of the AO for disallowance is that the debt in question was not business debt. It is observed that the Learned Commissioner of Income Tax (Appeals) has held that the assessee was engaged in financing business only on the ground that the assessee has earned ₹ 7,43,26,426/- as interest income and according to the Learned Commissioner of Income Tax(Appeals) the assessee is undoubtedly engaged in the financial business, lease, market advances as the assessee has earned high interest income from year to year. In our considered opinion merely from the quantum of interest income earned by the assessee it cannot be concluded whether the assessee is engaged in the business of financing or not. Financing business signifies activity of financing carried out in an organized and systematic manner to earn income. Further, the Learned Commissioner of Income Tax (Appeals) followed its order passed for the assessment year 199-2000, 2000-2001 and 2001-2002 for the purpose of deleting the disallowance of bad debts in the year under consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Learned Commissioner of Income Tax (Appeals) restricting the disallowance under Section 14A to Rs.24,70,456/- . 38. The amount of ₹ .24,70,456/- stated in the above ground comprises of two elements namely ₹ .24,20,456/- on account of interest disallowance and ₹ .50,000/- on account of administrative expenses. 39. It is observed in Revenue's appeal for Assessment Year 2004-05 ground No.2 also relates to restricting of disallowance under the head administrative to ₹ .50,000/- in place of ₹ .5,50,000/-. Further, the assessee's appeal for the Assessment Year 2002-03 in ground No.3 also relates to confirming of the disallowance of ₹ .3,60,000/- out of administrative and general expenses u/s. 14A of the Act and in Assessment Year 2004-05 the assessee in ground No.4 has challenged the order of the Learned Commissioner of Income Tax (Appeals) confirming the disallowance of ₹ .50,000/- out of Administrative expenses by invoking section 14A of the Act. We, therefore, shall decide all the above grounds together relating to disallowance out of administrative expenses by invoking provisions of sec. 14A and before that we proceed on to decide the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... table for tax exempt income. During the year, the appellant's tax free income was from the bonds of Sardar Sarovar Narmada Nigam Limited Series-I and Bonds of Ahmedabad Municipal Corporation. In both the Bonds, the appellant has invested Rs.50 crores. The appellant was argued that it had sufficient funds in the form of shares capital and reserves, therefore, no interest can be attributable for investment in these bonds. However, on specific examination, it was found that the investment has been made in these bonds from C.C. account and transferred from the loan against fixed deposits, which shows that the investment was made from the loan account against pledge of fixed accounts and the investment was not from interest free capital. The appellant's arguments that the loan was taken to avoid the premature encashment of FDR and therefore the interest paid on this loan account should be deducted from the interest on FDR which is much higher is not tenable because the interest on loan account has not been paid to earn interest income on FDR but to earn interest on Bonds and for other sources. Therefore, this argument of the appellant cannot be accepted. From the details of interest, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the finding of the Learned Commissioner of Income Tax (Appeals) to the effect that only Rs.50 crores was invested for earning tax free income in assessment year 2003-04 could be pointed out by the Learned Departmental Representative. Further, the Learned Departmental Representative also could not dispute the finding of the Learned Commissioner of Income Tax(Appeals) that out of said ₹ 50.00 crores, ₹ 40.00 crores was invested on 20-9-2002 and ₹ 10.00 crores was invested on 21-3-2002. In view of the above undisputed facts in our considered opinion there was no error in the order of the Learned Commissioner of Income Tax(Appeals) to the extent it restrict the disallowance of interest to ₹ 24,20,456/- in place of ₹ 95,59,825/- made by the Learned Assessing Officer. Thus this part of the ground of appeal of the revenue relating to interest expenditure for the assessment year 200304 is dismissed. 44. In respect of disallowance out of administrative expenses we find that the Learned Assessing Officer has made disallowance and Learned Commissioner of Income Tax(Appeals) confirmed the disallowance out of the same as under :- Sr. No. Assessment Year Disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's appeal for A.Y. 2003-04 is directed against order of the CIT (A) deleting disallowance of ₹ 99014 u/s. 43B. 48. The brief facts of the case are that the AO observed from the return of income that the assessee has deposited employees' contribution to provident fund and ESI after the due date. He therefore added ₹ 99014 to the income of the assessee u/s. 36(1)(va) r.w.s. 2(24)(x) of the Income Tax Act, 1961. On appeal, the CIT(A) deleted the disallowance by observing that the tribunal in assessee's own case in A.Y. 1996-97 vide order dated 2-9-2005 in I.T.A. No. 1873/AHD/2000 confirmed the order of CIT(A) in deleting the disallowance. Following the same, he deleted the disallowance made in the year under consideration. 49. After considering the submissions of both the parties, we find that the issue is now covered by the decision of the Hon. Supreme court in the case of CIT v. Alom Extrusions Ltd. [2009] 319 ITR 306 [SC] where it was held that "There is no merit in these appeals filed by the Department for the following reasons : firstly, s. 43B (main section), which stood inserted by Finance Act, 1983, w.e.f. 1st April, 1984, expressly commences with a non obstant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be accepted that Finance Act, 2003, to the above extent, operated prospectively. Take an example-in the present case, the respondents have deposited the contributions with the R.P.F.C. after 31st March (end of accounting year) but before filing of the returns under the IT Act and the date of payment falls after the due date under the Employees' Provident Fund Act, they will be denied deduction for all times. In view of the second proviso, which stood on the statute book at the relevant time, each of such assessee(s) would not be entitled to deduction under s. 43B for all times. They would lose the benefit of deduction even in the year of account in which they pay the contributions to the welfare funds, whereas a defaulter, who fails to pay the contribution to the welfare fund right upto 1st April, 2004, and who pays the contribution after 1st April, 2004, would get the benefit of deduction under s. 43B. Therefore, Finance Act, 2003, to the extent indicated above, should be read as retrospective. It would, therefore, operate from 1st April, 1988, when the first proviso was introduced. It is true that the Parliament has explicitly stated that Finance Act, 2003, will operate w. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r litigation. The CIT (A) therefore held that the liability has crystallized during the year under consideration and therefore the assessee was justified in claiming the amount as deduction in the year under consideration. Further, he also held that the AO has not disputed the admissibility of the expenses as business expenses. Accordingly, he vacated the disallowance made by the AO. 53. The DR supported the order of the AO, whereas the AR relied upon the order of the CIT (A). 54. After hearing the rival submissions and perusing the orders of the lower authorities and the materials available on record, we find that the assessee's claim of deduction for payment made to Advocate of ₹ 20,75,450 in respect of the judgement delivered in the USA on December 22, 2001. The AO observed that the judgement was rendered on 22nd December 2001 and therefore the liability relates to the earlier A.Y. 2002-03 and not of the year under consideration and therefore, disallowed the deduction to the assessee. The AO also observed that the deduction, if any, allowable to the assessee, was to be allowed in the A.Y. 2002-03. The CIT(A) deleted the disallowance on the ground that the bill was raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o directed against confirming disallowance of ₹ 7,19,147 incurred on account of share sale service charges. 56. The brief facts of the case are that on verification of details of misc. expenses filed by the assessee, the AO found that an amount of ₹ 3,91,001 is claimed as deduction towards expenses under the head 'share sale service charges'. The Assessing Officer disallowed deduction on the ground that the assessee was not a dealer in shares and therefore, the expenditure was not a business expenditure. The Assessing Officer observed that assessee has incurred the expenditure on sale of shares held by it as investor. Therefore he held that the expenditure in question was incurred in connection with sale of investment and was not deductible while computing the business income of assessee. 57. In appeal, the CIT (A) confirmed the order of the AO for the very same reasons. 58. We have heard the rival submissions and perused the materials available on record. The assessee has claimed ₹ 3,91,001.00 in asstt. year 2001-2002 and ₹ 7,19,147.00 in asstt. year 2004-2005 under the head share sale service charges. The lower authorities disallowed the above expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f facts of the case are that the Assessing Officer observed that the assessee made investment of ₹ 99.79 crores as on 31-3-2002. Such investment as on 31-3-2001 was ₹ 33.51 crores. The whole investment except ₹ 2.50 crores in flexibond of IDBI and in shares of mutual funds give either capital gain or dividend income. Interest income on IDBI flexibonds was offered for tax. In the year, there was increase in loan of ₹ 18.54 crores in comparison to A.Y. 2001-02. He also observed that increase in reserves and shares capital was much smaller than the increase in investment in shares and mutual funds. He also observed that interest expenses increased from ₹ 29.53 lacs in A.Y. 200102 to ₹ 79.76 lacs in A.Y. 2002-03. Therefore, he made proportionate disallowance out of interest expenditure of ₹ 34.09 lacs. For the Assessment Year 2004-05 the facts of the case are that the Learned Assessing Officer found from the balance sheet of the assessee that the company made investment totalling to ₹ 142,94,91,848/- as on 31-3-2004 in compared to ₹ 106,72,82,519/- as on 31-3-2003. He noted that the entire investment except ` Rs.10 crores in Ahmedab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estment was made out of interest free funds. The onus was on the appellant to show that the investment in shares was out of non-interest bearing funds which it has failed to show. The issue has also been elaborately dealt with by Hon'ble I.T.A.T. Ahmedabad in the case of H.K. Bhatt vs. ITO 91 ITD 311 wherein after considering various arguments, it has been held the proportionate interest is to be disallowed under section 14A in similar facts. Similarly, as the appellant is maintaining huge portfolio of shares and mutual funds, the administrative expenditure is also to be disallowed on proportionate basis. Considering these facts and judicial position, the Assessing Officer was fully justified in disallowing proportionate interest and administrative expenditure to the extent of ₹ .37.09 lacs and accordingly the same is hereby confirmed. Therefore, this ground of the appellant is dismissed." In Assessment Year 2004-05 by observing as under: "5.3 I have carefully considered the assessment order and the above submissions. I find that the CIT(Appeals)-VIII, Ahmedabad in appellant's own case for A.Y.2003-04 vide above referred appellate order confirmed the Learned Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as made out borrowed funds as well disallowed proportionate interest expenditure as being incurred not for business at ₹ 34.09 lakhs in the Assessment Year 2002-03 and ₹ .1.17 crores in the Assessment Year 2004-05. On appeal, the Learned Commissioner of Income Tax (Appeals) confirmed the action of the Learned Assessing Officer. Before us, the Learned Authorised Representative of the assessee submitted that interest free funds available with the assessee was much more than the investment made in tax free bonds and shares and therefore disallowance of the interest was not proper. We find that no nexus was proved by the Revenue between the investment in tax free bonds and shares on the one hand and borrowed capital on the other hand. Further, we find that no material was brought before us by the assessee to show that the interest free funds available with the assessee was more than the investment in tax free bonds and shares. In our considered opinion, interest expenditure which has been incurred in respect of borrowed capital which has been utilised for business purpose are only allowable as business deduction to the assessee. When there is no direct nexus between the bor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , an incentive/relaxation was sought to be given in respect of tax, duty, cess or fee by explicitly stating that if such tax, duty, cess or fee is paid before the date of filing of the return under the IT Act (due date), the assessee(s) then would be entitled to deduction. However, this relaxation/incentive was restricted only to tax, duty, cess and fee. It did not apply to contributions to labour welfare funds. The reason appears to be that the employer(s) should not sit on the collected contributions and deprive the workmen of the rightful benefits under social welfare legislations by delaying payment of contributions to the welfare funds. However, the second proviso resulted in implementation problems, which resulted in the enactment of Finance Act, 2003, deleting the second proviso and bringing about uniformity in the first proviso by equating tax, duty, cess and fee with contributions to welfare funds. Once this uniformity is brought about in the first proviso, then, the Finance Act, 2003, which is made applicable by the Parliament only w.e.f. 1st April, 2004, would become curative in nature, hence, it would apply retrospectively w.e.f. 1st April, 1988. It is important to note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e; Allied Motors (P) Ltd. Etc. vs. CIT (1997) 139 CTR (SC) 364 : (1997) 224 ITR 677 (SC) followed; CIT vs. J.H. Gotla (1985) 48 CTR (SC) 363 : (1985) 156 ITR 323 (SC) applied." Respectfully following the decision of the Hon Supreme court, we set aside the order of the CIT (A) and delete the disallowance of ₹ 2,77,427 on account of contribution to PF and ESI u/s. 43B and allow this ground of appeal of the assessee. 73. Ground No. 5 of the assessee's appeal in A.Y. 2002-03 relates to charging of interest u/s. 234B, 234C and 234D of the Act. 74. The AR of the assessee submitted that charging of interest u/s. 234B, and 234C of the Act was consequential. He submitted that regarding charging of interest u/s. 234D, the was introduced in the statute w.e.f. 1-6-2003 and was accordingly applicable to A.Y. 2004-05 and subsequent A.Ys and for this, he placed reliance on the decision in the case of income Tax Officer vs. Ekta Promoters (P) LTD. ITAT, DELHI ' E ' Special Bench (2008) 113 ITD 719 wherein it was held that Sec. 234D inserted in the IT Act, 1961, by the Taxation Laws (Amendment) Act, 2003, w.e.f. 1st June, 2003, being substantive in nature, has no retrospective effect, henc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... garding "lawajam scheme" and Rs.16,97,96,681/- regarding "guaranteed gift scheme" considering them to be capital in nature. 77. The brief facts of the case are that the assessee company claimed an amount of ₹ 19,06,22,532/- towards business development expenses. They were incurred on the incentive given to the subscribers of daily newspaper paying subscription in advance for the period of 12 months and also in respect of various guaranteed gift schemes to all the subscribers. The Learned Assessing Officer observed that under the "lawajam scheme" of daily newspaper the subscriber has to pay the subscription in advance for a period of 12 months. The subscribers are offered incentives by way of gifts. The expenses incurred and number of subscriptions of the last five years were considered during the assessment proceedings for the astt. year 2003-2004. There was no positive correlation between increase in number of subscribers and business development expenses. Same facts are noted for this year also. For the detailed reasons discussed in assessment order for the A.Y.2003-04, the expenses pertaining to "lawajam scheme" of ₹ 2,08,25,851/- are disallowed for this year also c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l base. In the circumstances, I fully agree with the Learned Assessing Officer that the expenditure is capital in nature and it is not in the nature of a revenue expenditure incurred wholly and exclusively for the purpose of carrying out the appellant's business. It is thus to be considered that the expenditure is incurred for maintenance of reputation and it cannot be allowed as admissible revenue expenditure. This view is supported by the decision of Bombay High Court in the case of CIT Vs. Homi Mehta reported at 11 ITR 142. In the said case, the assessee was a director of the company and for maintaining his business reputation he incurred certain expenses on gifts of money, which was held to be disallowable by the High Court. These grounds of appeal are accordingly dismissed and both the additions of Rs.2,08,25,851/- and of Rs.16,97,96,681/- are hereby confirmed." 80. We have heard the rival submissions and perused the materials available on record. The assessee has claimed deduction of business development expenditure of ₹ .19,06,22,532/-. The Learned Assessing Officer disallowed the above claim in the course of the assessment. On appeal, Learned Commissioner of Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure. On the above facts the Hon'ble High Court found that the expenditure was incurred partly to earn income which is chargeable under the head other sources (u/s.12 of the Income Tax Act, 1922), partly for the protection of the income of the other shareholder in the company, and partly for the protection of the assessee's business reputation. Thus, it was found by the Hon'ble High Court that expenditure was not incurred wholly and exclusively for the purposes of business. In contrast to the above facts, in the instant case it is observed that the expenditure in question was not incurred for earning any income which is chargeable under the head "Income from Other Sources" or with a view to protect the income of any other person or to protect the business reputation of any other person. The expenditure was found to be incurred for increasing and maintaining the subscribe base for the business of the assessee company. In the above circumstances, in our considered view the Learned Commissioner of Income Tax (Appeals) was not justified in confirming the disallowance for the year under consideration alone after deleting similar disallowance in earlier three assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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