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TMI Blog2025 (5) TMI 368X X X X Extracts X X X X X X X X Extracts X X X X ..... d certified by the statutory auditors of the appellant company as having been prepared in accordance with the requirements of Parts II and III of Schedule VI to the Companies Act, 1956?" 2. Thereafter, during the course of hearing, following additional substantial question of law was framed: Additional substantial question of law: Whether the Tribunal committed an error of law in not allowing miscellaneous expenses of Rs. 49,18,786/- (Rupees forty-nine lac eighteen thousand seven hundred eighty-six only) incurred by the appellant for MMC under Section 37 of the 1961 Act on the ground of commercial expediency as well as on the ground of the expenses where so incurred in order to preserve the reputation of estate and business of the assessee? (I) FACTS: 3. Facts leading to filing of this appeal, briefly stated, are that the assessee is a public limited company and is engaged in the manufacture of Jeeps, Tractors, Implements and other products. The assessee filed the return of income for the period from 1st April 1989 to 31st March 1990 (Assessment Year 1990-91) declaring a total income of Rs. 3,50,20,837/- (Rupees three crores fifty lac twenty thousand eight hundred thirty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confirmation and not deleting the disallowance in respect of sum of Rs. 49,18,786/- (Rupees forty-nine lac eighteen thousand seven hundred eighty-six only) as well as a sum of Rs. 200.47 lac is concerned, the said claim cannot be allowed in view of the order passed by the Tribunal in assessee's own case being ITA No. 6886/Bom/92 for the Assessment year 1989-90. The Tribunal further held that the provision for warranties made by the assessee on the estimated basis in view of the past experience cannot be termed as an ascertained liability. It was also held that a provision for past services liability in respect of retirement gratuity for an amount of Rs.242.14 lac has be to added back. It was also held that the amount was debited in the profit and loss account below the line and hence, it cannot be said that the profit and loss account was prepared as per Part II and III of Schedule VI to the Companies Act and cannot be disturbed. In the aforesaid factual background, this appeal arises for our consideration. (II) SUBMISSIONS ON BEHALF OF THE ASSESSEE: 6. Learned senior counsel for the appellant has submitted that the first substantial question of law has been answered in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s submissions, reliance has been placed on the supreme court judgment in the case of PRINCIPAL COMMISSIONER OF INCOME TAX-6 VS KHYATI REALTORS PVT. LTD. AIR 2022 SC 4030. (IV) CONSIDERATION: 9. We have considered the submissions made by both the sides and have perused the record. The first substantial question of law and the additional substantial question of law are inter-linked. Therefore, we propose to deal with the same, analogously. The Supreme Court, in CIT VS DELHI SAFE DEPOSIT CO. LTD. [1982] 133 ITR 756 (SC), examined the question, whether an expenditure incurred on account of commercial expediency is admissible as deduction under Section 37 of the 1961 Act. The Supreme Court held that the expenditure incurred was a deductible expenditure. The relevant paragraph reads as under: "The first question which needs to be examined is whether the amount in question can be treated as an expenditure laid out or expended wholly and exclusively for the purposes of the business of the assessee which is admissible as a deduction under section 37 of the Act. It is no doubt true that the solution to a question of this nature sometimes is difficult to arrive at. But, however difficult ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd in the circumstances of the case as well as in law the Tribunal was right in not allowing expenses of Rs. 42.89 lakhs incurred by the appellant-company for MMC and not allowing deduction of write-off of Rs.622.01 lakhs (not Rs. 578.09 lakhs as originally put) under section 28 of the Act being the amount lent to MMC including interest due thereon and advances for purchase of machinery given in the course of business dealing with MMC?" 11. The Division Bench of this Court allowed the appeal preferred by the assessee. The relevant extract of the judgment of the Division Bench reads as under: "17. Admittedly, MMC was a subsidiary of appellant. Admittedly there was reference by IDBI to BIFR to formulate a scheme of rehabilitation of MMC. As per the scheme and as per the copy of the order dated 23rd September 1988 passed by BIFR available on record, it was just and equitable to wind up MMC. In the said order of BIFR, there is also a reference that appellant had already invested money to revive MMC. In fact it is also recorded that appellant was directed to amalgamate MMC with itself which appellant refused to because that would make appellant itself a sick company. It is also reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he amounts as business loss/ deductions in his books of account that would prima facie establish that it was not recoverable loss unless the Assessing Officer for good reasons holds otherwise. The burden would be on the Assessing Officer to make out cogent reasons, which is not so in the case here. It is also not in dispute that the amounts spent were against/recoverable from group company MMC. It is quite obvious for reasons mentioned above that the amounts in question were incurred by appellant for the business expediency of the group company. It is not disputed that there existed a nexus between appellant and MMC. Such expenditure/debt should be treated as having been incurred for the purpose of business and directly relatable to the business of appellant and thus eligible for deduction as business expenditure in their return of business income. Otherwise it would not reflect the true profit and gain of appellant. A sum of money expended, not of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the grounds of commercial expediency, and in order indirectly to facilitate the carrying on the business, may yet be expended wholly and exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing and not deleting the disallowance of the following amounts, which were due to it from certain concerns:- Deposits Rs.142.50 lakhs Interest Rs. 57.97 lakhs ------------------------------ Total Rs.200.47 lakhs ================= 5.1 The learned counsel for the assessee fairly conceded that the above two grounds stand covered against the assessee by the decision of the Tribunal in the assessee's own case in ITA No.6886/Bom/92 for the Assessment Year 1989-90. Respectfully following the precedent established in the assessee's own case for the immediately preceding assessment year, we dismiss both the above grounds of appeal". 13. Thus, it is evident that the revenue, while negating the claim of the assessee for allowing the expenses, has relied upon the order passed by it in ITA No.6886/Bom/92 for the Assessment Year 1989-90. The aforesaid order passed by the Tribunal was set aside by a Division Bench of this Court in MAHINDRA & MAHINDRA LTD. VS. COMMISSIONER OF INCOME TAX (SUPRA). The order passed by the Division Bench of this Court has been accepted by the revenue and it has not filed any SLP against the judgment of the Division Bench of this Court. We are in co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur of the assessee. 15. Now, we advert to second substantial question of law. The levy of minimum income tax was came into force w.e.f. 1st April 1984 by the Finance Act, 1983. The said Finance Act introduced a new Chapter VI-B in the Act of 1961. Chapter VI-B consisting Section 80VVA was omitted by Finance Act, 1987 w.e.f. 1st April 1988 and a new provision viz. Section 115J was introduced in the Statute w.e.f. Assessment Year 1988-89. The relevant extract of Section 115J of the Act 1961 is extracted below for facility of reference: "115J(1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee being a company (other than a company engaged in the business of generation or distribution of electricity), the total income, as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1988 but before the 1st day of April, 1991 (hereafter in this section referred to as the relevant previous year), is less than thirty per cent of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount was withdrawn) under this Explanation; or (ii) the amount of income to which any of the provisions of Chapter III applies, if any such amount is credited to the profit and loss account; or (iii) the amounts as arrived at after increasing the net profit by the amounts referred to in clauses (a) to (f) and reducing the net profit by the amounts referred to in clauses (i) and (ii) attributable to the business, the profits from which are eligible for deduction under section 80HHC or section 80HHD; so, however, that such amounts are computed in the manner specified in sub-section (3) or sub-section (3A) of section 80HHC or sub-section (3) of section 80HHD, as the case may be; or (iv) the amount of the loss or the amount of depreciation which would be required to be set off against the profit of the relevant previous year as if the provisions of clause (b) of the first proviso to subsection (1) of section 205 of the Companies Act, 1956 (1 of 1956), are applicable." 16. Thus, Section 115J of the 1961 Act mandates that in case of a company whose total income as computed under the provisions of the Act 1961 is less than 30% of the book profit, the total income chargeable t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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