TMI Blog2018 (8) TMI 2114X X X X Extracts X X X X X X X X Extracts X X X X ..... moting the growth of IT and ITES sectors in the State of West Bengal. It is also not in dispute that the assessee company s proposal to enter into joint venture with renowned industrial houses had been abandoned and hence the assessee had no other choice after making investments in shares but to write off the same. This conscious business decision of the assessee cannot be questioned by the revenue and if the shares held by the assessee results in any gain in future on sale of the same, the same would any way get taxed as income in the hands of the assessee company. We find that the objects of the assessee company includes financing also and that the financing could be by way of lending to parties by way of loans or by way of investing in shares of those companies. In effect the assessee had only brought down the value of investments on the ground of non-realisability of the value thereon. Hence we hold that the assessee is entitled for deduction in respect of write off of investments by respectfully following the decision of Tamil Nadu Industrial Investment Corporation Ltd [ 2017 (7) TMI 1048 - MADRAS HIGH COURT ] Decided in favour of assessee. MAT computation - provision for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble Shri S.S. Viswanethra Ravi, JM For the Department : Shri Md. Usman, CIT DR, Shri S. Dasgupta, Addl. CIT DR. For the Assessee : Shri J.P. Khaitan, Sr. Counsel, Shri P. Jhunjhunwala, Advocate. ORDER PER M. BALAGANESH, AM 1. These appeals by the Revenue as well as assessee arise out of the common orders of the Learned Commissioner of Income Tax(Appeals)-XXIV, Kolkata [in short the ld CIT(A)] in Appeal Nos. 1211 1212/CIT(A)-XXIV/Cir-1/12-13 dated 28.03.2013 against the separate order passed by the DCIT, Circle-1, Kolkata [ in short the ld AO] under section 143(3) read with Section 143(3) of the Income Tax Act, 1961 (in short the Act ) dated 30.12.2010 26.12.2011 respectively for the Assessment Years 2008- 09 2009-10. Since identical facts are involved in both the appeals, they are taken up together and disposed off by this common order for the sake of convenience. 2. DISALLOWANCE OF INVESTMENTS WRITTEN OFF Ground No. 1 for Asst Year 2008-09 in Assessee Appeal Ground No. 1 for Asst Year 2009-10 in Assessee Appeal The facts of Asst Year 2008-09 are taken up for adjudication and the decision rendered thereon with regard to thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed industrial houses for promotion of IT ITES industry in West Bengal. Thereafter, these investments were written off considering the net worth of the companies based on the latest audited financial statements. 2.4. The ld AO sought to disallow the claim of write off of investments made in the aforesaid subsidiaries on the following grounds:- a) Assessee is not engaged in money lending / financing business. b) Financing the subsidiaries is not the business of the assessee. c) Advances were given to the subsidiaries for setting up new business as admitted in the explanation. Accordingly the ld AO disallowed the claim of write off of investments in the sum of Rs 97,34,440/- for the Asst Year 2008-09 in the assessment. This action of the ld AO was upheld by the ld CITA. Aggrieved, the assessee is in appeal before us. 2.5. The ld AR stated that 3% of the shares of the assessee company were held by West Bengal Industrial Development Corporation and 97% were held by the Government of West Bengal. The ld AR stated that the assessee company is engaged in the business of promoting the growth of electronics and allied sectors in the State of West Bengal by making investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessee before us is not engaged in the business of financing. The assessee before us is a manufacturing company and hence every investment made in subsidiaries cannot be stretched further to have been made for the purpose of business. He further argued that the investments made by the assessee company in the aforesaid subsidiaries were not meant for survival needs of the subsidiary companies. 2.7. We have heard the rival submissions. From the objects contained in the Memorandum of Association of the assessee company, we find that the assessee company was engaged in promoting the growth of electronics, IT and ITES sectors in the State of West Bengal. The relevant clauses of the object clause in the memorandum of association are as under:- The Clause (1) of the Memorandum of Association of the assessee company stated as follows:- To develop electronics and allied industry through establishment of manufacturing, research and development activities and such other means as will be conducive to the growth of electronics and allied technology. The Clause (46) of the Memorandum of Association of assessee company stated as follows:- To promote and undertake th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umstances of the case, the Tribunal had enough material to hold and was right in holding that the loans to companies in liquidation had become bad debts and ought to be written off ? 2. Whether in the facts and circumstances of the case, the Tribunal was right in holding that the shares are the stock in trade of the assessee company ? 3. Whether in the facts and circumstances of the case, the Tribunal was right in allowing the re-valuation of only loss making shares at market value ? In that case, TIIC Ltd was a State Government Undertaking and had made certain investment in shares of industrial companies and lent monies to those companies. M/s TIIC Ltd sought to write off the advances given and value of investments in those industrial companies and claimed the same as deduction in its returns. The Hon ble High Court held as under:- 3. We have heard the submissions of Mr. S. Swaminathan for the Revenue and Mr. Vijayaraghavan for the assessee. 4. The assessee is a State Government Corporation engaged in the business of promoting industrial development in the State of Tamilnadu. The Memorandum and Articles of Association reveals the main objects to be finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rite-off of an amount of Rs. 33.82 lakhs being 90% of the advances made to two companies, M/s. Upper India Bearings Limited and M/s. Nedumbalam Samiappa Annapoorani Mills Limited, where creditors had approached the High Court seeking their winding-up and receivers had been appointed. 7. The need for and criteria adopted for the valuation of the shares as well as the efforts taken and measures adopted by the assessee company for recovery of the advances have been duly noted by the tribunal. The erosion of capital leading to a fall in value of shares has been established. We are thus of the view that the conclusion of the tribunal in this regard are well founded and are not vitiated by perversity. Question Nos. 1 and 3 are answered against the Department and in favour of the assessee. 8. The order of the tribunal is confirmed and the departmental appeal dismissed answering all Substantial Questions of Law in favour of the assessee and against the department. No costs. 2.7.2. We find that the ld DR placed reliance on the decision of the Hon ble Jurisdictional High Court relied upon by the ld CITA in the case of W.B. Financial Corporation vs DCIT reported in 263 ITR 33 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et as investments, the same were to be considered only as stock in trade as it was invested in consonance with the main objects stated in the memorandum of association of the assessee company, so as to make those companies wholly owned subsidiaries. It is also not in dispute that the assessee despite knowing the fact that the subsidiaries had incurred huge losses, had bothered to acquire the shares from outsiders during the year so as to enter into joint venture with renowned industrial houses for promoting the growth of IT and ITES sectors in the State of West Bengal. It is also not in dispute that the assessee company s proposal to enter into joint venture with renowned industrial houses had been abandoned and hence the assessee had no other choice after making investments in shares but to write off the same. This conscious business decision of the assessee cannot be questioned by the revenue and if the shares held by the assessee results in any gain in future on sale of the same, the same would any way get taxed as income in the hands of the assessee company. We find that the objects of the assessee company includes financing also and that the financing could be by way of lendin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Under the head Investments Schedule 31.3.08 31.3.07 Zenerex Pvt Ltd 300 Nos. Equity shares of Rs 10 each fully paid up 3,000 3,000 Less: Provision 3,000 0 ----------- ----------- SUB-TOTAL 0 3,000 ----------- ----------- Millenium Information Systems P Ltd 320000 Nos. Equity shares of Rs 10 each fully paid up 32,00,000 32,00,000 Less: Provision 32,00,000 0 ----------- ----------- SUB-TOTAL 0 32,00,000 ----------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... analysis, at the year end, the so-called provision does not remain and the balance sheet at the year end only carries the amount of loans and advances or debtors, net of such provision made by the assessee for the impugned bad debt. Based on this, the Hon ble Apex Court considered the following question for consideration :- The second question which arises for determination in these civil appeals is, whether it is imperative for the assessee bank to close the individual account of each debtor in its books or a mere reduction in the Loans and Advances Account: or Debtors to the extent of the provision for bad and doubtful debt is sufficient? The ld AR argued that the Hon ble Apex Court had held that even if the provision is made and the same is reduced from the value of loans advances and debtors, and the figures depicted in the balance sheet is net of such provision on the assets side of the balance sheet, the assessee would be entitled for deduction towards the provision made. Accordingly, he argued that the provision for doubtful investments and doubtful loans and advances in the sum of Rs 4,98,23,842/- would have to be allowed as deduction while computing the book p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Hence it could be safely concluded that the amounts provided towards doubtful investments and advances were only in the nature of mere provisions and not write off. Accordingly, the decision of Hon ble Gujarat High Court would not come to the rescue of the assessee. In the instant case, the provisions of section 115JB of the Act, being a complete code in itself having a deeming fiction , need to be strictly construed and and amendment has been brought by way of inserting clause (i) in Explanation 1 to section 115JB of the Act with retrospective effect from 1.4.2001 by the Finance (No. 2) Act, 2009. Accordingly, we hold that the addition of Rs 4,98,23,842/- while computing the book profits u/s 115JB of the Act by the ld AO is in order. The Ground No. 2 raised by the assessee for the Asst Year 2008-09 is dismissed. 4. At the time of hearing, the ld AR stated that the Ground No. 3 raised by the assessee is not pressed for the Asst Year 2008-09. The same is reckoned as statement from the Bar and accordingly, the Ground No. 3 for Asst Year 2008-09 is dismissed as not pressed. 5. The Ground No. 4 for Asst Year 2008-09 is general in nature and does not require any specific adjudic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,10,205 5,10,205 3,82,653 Depreciation 46,06,824 46,06,824 34,55,118 Watch Ward 64,68,493 0 48,51,369 Gardening Expenses 16,46,380 0 12,34,785 ------------------------- ------------------------- Total 1,03,41,554 1,76,41,852 ------------------------- ------------------------- The ld AO recomputed the entire income of the assessee by starting from Net Profit as per Profit and Loss Account and then proceeded to make disallowance of Rs 1,76,41,852/- under the head income from business towards aforesaid expenditure attributable to earning rental income. The ld AO also granted standard deduction u/s 24(a) of the Act in respect of expenses towards rental income under the head income from house property . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s stated to be not pressed by the ld AR. The same is reckoned as a statement from the Bar. Accordingly, the Ground No. 2 raised by the assessee is dismissed as not pressed. 11. Disallowance u/s 14A of the Act read with Rule 8D of the IT Rules Ground Nos. 3(a) to 3(c ) of Assessee Appeal in Asst Year 2009-10 The brief facts of this issue are that the assessee was in receipt of dividend income of Rs 28,09,924/- which was claimed as exempt in the return of income. The assessee claimed that no expenditure was incurred by it for earning dividend income. The ld AO applied the provisions of second and third limb of Rule 8D(2) of the IT Rules and made disallowance of Rs 6,93,046/- in the assessment. This action of the ld AO was upheld by the ld CITA. Aggrieved, the assessee is in appeal before us. 11.1. We have heard the rival submissions. We find that the ld AR argued that the ld AO did not record any satisfaction as mandated in Section 14A(2) and Rule 8D(1) of the Rules having regard to the accounts of the assessee by clearly stating as to why the claim of the assessee that no expenditure was incurred for earning exempt income, was incorrect. It is axiomatic that this is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfaction by the ld AO as mandated in section 14A(2) / 14A(3) of the Act read with Rule 8D(1) of the Rules in as much as the ld AO had not referred to the accounts of the assessee by identifying individual account heads and link the same with the investments made by the assessee so as to conclude whether at all any expenditure could be attributable towards such exempt income. In the absence of any such recording of satisfaction, we hold that no disallowance u/s 14A of the Act read with Rule 8D of the Rules could be made by the ld AO. 11.5. We also find that that there is no finding given by the ld AO that the borrowed funds were utilized by the assessee for making investments which in turn had yielded dividend income which was claimed as exempt. We find that the assessee is having sufficient own funds as is evident from the balance sheet. Reliance in this regard is placed on the decision of Hon ble Bombay High Court in the case of Reliance Utilities and Power Ltd reported in 313 ITR 340 (Bom). The ld AR also argued that the assesee had earned huge interest income which is much more than the interest paid. Hence there is no positive interest expenditure available for making d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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