TMI Blog2016 (9) TMI 1664X X X X Extracts X X X X X X X X Extracts X X X X ..... that since investment has been made under commercial necessities, the proposition laid down in the case of S. A. Builders Limited [ 2006 (12) TMI 82 - SUPREME COURT] is required to be considered before disallowing interest expenditure having been incurred on the funds borrowed for the purpose of business - investment in group companies were having taxable income and assessee has offered substantial long term and short term capital gains in the returns of subsequent years. Thus we direct the AO to decide the matter afresh in terms of the above observations of the Tribunal. We direct accordingly. Addition of prior period expenses - assessee company has claimed prior period expenses related to reversal of monthly toll charges under settlement with SPV Company Path Oriental Highways Ltd and income has been offered in respective year whereas there is no income received to the assessee - HELD THAT:- Tribunal in its order in the assessee s own case for the assessment year 2008-09 [ 2013 (9) TMI 1300 - ITAT INDORE] has restored this issue to the file of the Assessing Officer as held As per the accounting standard, in case of construction contractor, the contract revenue would a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. The assessee company is engaged in business of construction/operation and maintenance of infrastructure project of roads and bridge under B.O. T. Scheme. 4. During the course of scrutiny assessment, the Assessing Officer found that assessee had made investment in equity capitals of group companies as well as in the mutual funds. He further noted that during the year there is fresh investment of Rs. 7.87 crores. Accordingly, by invoking provisions of Section 14A, he worked out interest of Rs. 1,76,38,517/- as disallowable. The Assessing Officer has discussed the issue at page 3 to 7 of the order. By the impugned order, the ld. CIT(A) confirmed the action of Assessing Officer against which the assessee is in further appeal before us. 5. Shri Anil Kamal Garg, C. A., appeared on behalf of assessee and contended that entire new investment was made by the assessee company out of interest free funds being cash accrual of the year, therefore, there is no justification to invoke the provisions of Section 14A for making disallowance of interest u/s 14A. The ld. Authorized Representative further contended that the provisions of sub-section (2) of Section 14A of the Act, would come in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation, which indicate that the assessee company was having opening investments amounting to Rs. 34,66,13,178/- and the closing investments amounting to Rs. 42,43,50,000/- thereby registering a net increase in the investment by a sum of Rs. 7,77,36,822/- only. If to such net investment of Rs. 7,77,36,822/-, amount of disinvestment in quoted shares of nongroup companies at Rs. 9,50,678/- is added, the amount of fresh investment in companies would work out at Rs. 7,86,87,500/- only. Further, as per Audited profit and loss account of the assessee company for the relevant previous year, as placed at page no.56 of the paper book, the net profit of the company after depreciation and tax has been shown at Rs.8,39,12,704/- and after making adjustments for non-cash items being depreciation and reversal of excess provision of tax for earlier years at Rs.4,88,81,353/- and Rs.2,36,037/- respectively the net cash profit of the assessee company, for the previous year under consideration, works out to be at Rs.13,25,58,020/-. Thus, in view of the above facts, it was submitted that the authorities below grossly erred in completely brushing aside the explanation of the assessee to the effect that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .20,40,60,000/- from sale of investment in shares of the above named two companies was not only shown by the appellant company in its audited profit loss account for the year ended as on 31- 03-2010 but the same was also offered by it in its return of income for the assessment year 2010-11 as taxable long-term/short-term capital gain. As per audited financial statements of the assessee company for the financial year ended 2009-10, as placed at Page No.94 to 115 of the Paper Book, it is clear that the assessee company has shown income amounting to Rs. 20,40,60,000/- as profit on sale of Shares under Schedule 12 of Other Income. Further, the veracity of the claim as regard to deriving of profit on sale of shares of the group companies can also be verified from Schedule 06 of Investments as placed at page no. 104 of the paper book. From the computation of taxable income of the assessee for assessment year 2010-11 as placed at page no. 91 of the paper book, it can further be gathered that the assessee company has duly shown income amounting to Rs. 15,83,27,550/- and Rs. 2,06,96,882/- respectively as Long-term Capital Gain from sale of shares n Oriental Pathways (Indore) Pvt. Ltd. and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of group companies as a matter of commercial expediency. We also found that the assessee was having huge reserve as well as surplus funds available out of its profit. However, to show that investment in shares of Associate concerns have been made out of non interest bearing funds, is on the assessee and burden lies on him to demonstrate before the Departmental Authorities that no interest bearing fund has been used. It is also a matter of record that since investment has been made under commercial necessities, the proposition laid down by the Hon'ble Supreme Court in the case of S. A. Builders Limited, 288 ITR 1, is required to be considered before disallowing interest expenditure having been incurred on the funds borrowed for the purpose of business. We also found that investment in group companies were having taxable income and assessee has offered substantial long term and short term capital gains in the returns of subsequent years. Keeping in view totality of facts and circumstances of the case, we restore the matter back to the file of Assessing Officer for deciding afresh in terms of our above observations and the judicial pronouncements cited by the ld. Authorized Repre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C contract in which the liability to pay Rs. 5 lakhs per month as provision was spelt out. Instead the bill was raised for Rs.89.06 lakhs and got accounted accordingly by the appellant party and also offered as income by the counterparty. In next accounting year i.e. 2008-09 this error when noticed was corrected. In accounting, the errors and omissions may occur which has to be rectified and a wrong liability claim needs to be addressed suitably and expeditiously which has been done. The point of accounting in such situation is when an action for recovery is initiated. Therefore, this was a genuine mistake which has been rectified in FY 2008-09, no disallowance in this year which is point of accrual can be made so as to disentitle the appellant of its legitimate claim. Similar amount of income is offered by the counterparty. The transaction was found genuine and revenue entertained no contrary beliefr. This further affirms that it was an error which has been noticed in the subsequent year and given effect to. The judgment in CIT vs. Nagri Mills Ltd. 330 ITR 681 if the rate of tax is same, the revenue should not resort to make addition in one year and deletion in another year, has a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the contract, as recognized by the assessee, is given as under: Financial year Assessment year Amount (Rs.) 2005-06 2006-07 12,14,01,933 2006-07 2007-08 31,46,29,591 2007-08 2008-09 (under consideration Total 45,82,18,819 20. From the record, we found that the above receipt of income by assessee from POHL is fully tallying with the amount of payments shown by POHL in their letter of confirmation, which has also been made a part of remand report dated 12.6.2012 submitted by the Assessing Officer to the ld. CIT(A). Thus, there was no variation in the amount of contract payment received by the assessee from POHL and recorded in the regular books of account. While framing assessment u/s 143(3), the Assessing Officer has not doubted any receipts from POHL which were duly accounted for by assessee as per system of accounting regularly followed. During appellate proceedings, CIT(A) observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... POHL would acknowledge the claim of assessee company only if the MORT H accepts the counter claim of POHL. Thus, the prematurity claim lodged by the assessee company was full of un-certainty both as regards to its acceptance by POHL and the measurement of magnitude of the claim. It is matter of record that during the year under consideration, nothing was received by assessee from POHL against these proforma invoices, therefore, no income accrued, arose or received by the assessee with respect to the proforma invoice raised. On specifically asking by the Bench, it came to our notice that till date, nothing was received by the assessee nor the claim of the assessee was acknowledged by POHL nor the claim of POHL has been assessed and determined by MORT H. All these facts are evident as per material placed on record. 21. As per our considered view, under the provisions of Income-tax Act, income tax is charged for any assessment year in respect of total income of any person for previous year and such income tax is charged for total income as contemplated under the provisions of Section 5. Under the provisions of Section 5, total income of any previous year of a person which is resid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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