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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Income Tax Officer, M/s. BFIL Finance Limited Ward 1(1)(2), Room No. 534, Eucharistic Congress Bldg No.1, 4th Floor, 5 Convent Aayakar Bhavan, M.K. Road Vs. Mumbai-400 020 Street Colaba, Mumbai-400 039 Appellant .. Respondent PAN No. AOAPP1898PAAACI3193H Revenue by .. Dr. Suman Ratnam, DR Assessee by .. Shri FArrokh V. Irani, AR Date of hearing .. 09-02-2017 Date of pronouncement .. 26-04-2017 O R D E R PER MAHAVIR SINGH, JM:
This appeal by the Revenue is arising out of the order of CIT(A)-I, Mumbai, in appeal No. CIT(A)-I/IT/357/06-07/120 dated 13-10-2008. The Assessment was framed by ITO Ward 1(1)(2), Mumbai for the A.Y. 2004-05 vide order dated 26-12-2006 u/s 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The first issue in this appeal of assessee is against the order of CIT(A) deleting the disallowance of expenses relatable to exempted income by invoking the provisions of section 14A of the Act. For this Revenue has raised following ground No. 1: -
“1. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in deleting the disallowance under section 14A of the Income Tax Act ignoring the Special Bench decision of the Mumbai Tribunal in M/s. Daga Capital Management Pvt ltd. & ors ITAT No8057/Mum/03.”
M/s. BFIL Finance Limited; AY:04-05
Briefly stated facts are that the AO noticed that the assessee has earned dividend income of Rs. 1,18,158/- which was claimed as exempted income but no expenditure was attributed to such exempted income. The AO disallowed 5.64% of the total expenditure claimed at Rs. 20.95 lakhs, which comes to Rs.1,18,158/-. Aggrieved, assessee preferred the appeal before CIT(A), who confirmed the disallowance at 5% of the exempted income i.e. dividend income as expenditure attributable to such income and addition was restricted at 5,908/- by observing in Para 3.2 as under: -
“Before me the Ld.AR of the appellant objected to the disallowance /on the ground that no specific expenditure is incurred for earning the dividend. The Ld.AR has brought to my notice that this issue has been decided by me in my order for AY: 2002-03 whereby 5% of the dividend income has been held as expenditure. Investment is a complicated procedure. It requires constant attention. So some amount of the managerial and administrative expertise is bound to be used for making investment So some of the managerial and administrative expenses is definitely attributed to the earning of the dividend income. Following my order for AY: 2002-03, 1 confirm the disallowance of-5% of the dividend income as expenditure attributed to such income. So the addition of this comes to R5908 (5% of Rs.1,18,158) which is confirmed. The appellant gets a relief of the balance amount.”
Aggrieved Revenue is in appeal before Tribunal.
After hearing the rival contentions, we find that there is no infirmity in the order of CIT(A) and hence the same is confirmed.
The next issue in this appeal of Revenue is against the order of CIT(A) deleting the disallowance made by AO on account of depreciation on leased assets. For this Revenue has raised following Ground No.2: - Page 2 of 11. M/s. BFIL Finance Limited; AY:04-05
“2. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in directing the Assessing Officer to allow depreciation on leased assets amounting to Rs.40,03,029/- even though the assets given on lease to the lessees had become Non-Performing assets (NPA).”
We have heard the rival contentions and gone through the facts and circumstances of the case, we find that the AO disallowed the depreciation amounting to Rs. 40,03,029/- on plant and machinery on the ground that such assets have not been put to use during the year and the assets have been leased but not booked income by the assessee. Aggrieved, assessee preferred the appeal before CIT(A), who following the earlier years decision for AY 2003-04 allowed the claim and assessee by observing in Para 4.2 as under: -
“4.2 Before me the Ld.AR has filed a written submission which has been considered and not reproduced here. He has further brought to my notice that this issue has been decided by me in the appellant's own case for AY:2003- 04. The relevant part of my decision at page 4 para 3.7 of this order is as under:
I have carefully considered the submissions of the Ld.AR and gone through the assessment order. Depreciation on some of the assets which were considered to be of financial lease were disallowed in the earlier years and confirmed by my predecessors. I have also confirmed the disallowance in my order for the AY 2002-03. However the depreciation which has been allowed during this year is on different assets which have been allowed to the appellant in the earlier years. Such assets have been leased to different parties and installed at their premises. Since the lease agreement has been completed during this year, Page 3 of 11 M/s. BFIL Finance Limited; AY:04-05 the appellant has not disclosed any' leased rentals out of these leased assets. However that does not given the AG any authority to disallow the depreciation on such assets particularly in the light of the Delhi High Court decision in the case of CIT Vs Reetu Fin lease P Ltd and Calcutta High Court in the case of CIT Vs Union Carbide (I) Ltd, 254 ITR 488. Under the circumstances, the AG is directed to allow depreciation amounting to Rs. 54,71,658/-.”
Aggrieved, Revenue is in appeal before us.
We find that this issue is covered by Tribunals’ decision in assessee’s own case for the AY 2003-04 in order dated 07-10- 2009, wherein vide Para 4 the depreciation was allowed as under: -
“4. We have perused the records and considered the rival contentions carefully. The dispute is regarding allowability of depreciation on the leased assets. There is no dispute that the assessee was owner of the assets and the same had leased to the lesees. The depreciation has been disallowed only on the ground that in the relevant year the assessee had not received any rental income in the form of lease rent. In our view only on the ground that no income was received during the year depreciation could not be disallowed when the assets had been actually leased. We also note that in the earlier year the depreciation in respect of same leased assets have already been allowed by the authorities which shows that there was no doubt about genuineness of lease. The matching principle requires that the income and expenses must relate to the same period and does not mean that expenses incurred cannot be allowed only because no income has been earned. It is a settled legal position that M/s. BFIL Finance Limited; AY:04-05 expense incurred wholly and exclusively for eating of income has to be allowed even if no income is actually earned. No case has been made before us that no income was possible from the lease of assets or that income was not includible in total income. We therefore, on the facts of the case held that depreciation has to be allowed.”
As the issue is squarely covered in favour of the assessee by Tribunal’s decision in assessee’s own case for earlier AY, respectfully following the same we confirmed the order of CIT(A) and delete the disallowance.
The next issue in this appeal of Revenue is against the order of CIT(A) deleting the addition made by the AO income of Rs. 54,78,304/-. For this Revenue has raised following ground No.3: -
“3. On the facts and in the circumstances of the case and in law the learned CIT (A) erred in directing the Assessing Officer to verify and exclude the amount of Ps. 54,78,304/- from the income computed, even though the assessee himself failed to reduce this amount while computing the income which was returned.”
Briefly stated facts are that the assessee’s unpaid interest liability of Rs. 54,78,304/-due on loans from banks / financial institutions which was considered as disallowable item and reduced from the total loss for the AY 1997-98. During the assessment proceedings the assessee filed copy of acknowledgement of return of income, computation of total income, assessment order of the relevant years and working of interest offered to tax but the AO has not reduced this amount. Aggrieved, assessee preferred the appeal before CIT(A), who directed the AO to verify and allow the claim of the assessee vide Para 7.2 of his order as under: -
“7.2 1 have heard the Ld.AR of the appellant. He submitted that the unpaid interest of Rs.54,78,504 due on loans from banks/financial institutions was considered as M/s. BFIL Finance Limited; AY:04-05 disallowable item and reduced from the total loss for the AY:1997-98. A relevant copy of the documents were filed before the AO The documents filed included acknowledgment copy of the return of income, computation of total income, assessment order and working of interest offered for tax. It will be obvious from these documents that total unpaid interest of Rs.4,60,65,219 due on loans from banks & financial institutions was considered as disallowable item and reduced from the total loss for AY:1997-98. Out of this amount the interest liability of an amount of Rs.54,78,304/- was waived by the respective banks and was credited by the appellant to the P&L account. However, since this amount has not been claimed as expenditure or so allowed in the relevant year, the waiver of this amount during this year will not result in addition of the appellant's income. The appellant had done so inadvertently and had requested the AO to correct the mistake while passing the assessment order which has not been done. The waiver of outstanding interest will amount to cessation of liability but this liability was not claimed or allowed in the income-tax computation in the earlier years. So the waiver of interest this year will not call for an addition to the appellant's income. If the appellant has inadvertently failed to remove the amount in the computation statement, this could have been corrected by the AO while passing the assessment order. The AO is therefore directed to verify the issue and remove the sum of Rs. 54,78,304/-from the income computed, if this interest was indeed disallowed by the appellant itself in the earlier years.”
Aggrieved, now Revenue is in appeal before us. M/s. BFIL Finance Limited; AY:04-05
Before us, it was contended that the assessee has filed a copy of acknowledgement of returns of income for AY 1997-98, computation of total income, assessment order for AY 1997-98 & working of interest offered for tax. The learned Counsel for the assessee referred to letter dated 16-10-2006 addressed to ITO stating the factum that the same was offered in AY 1997-98, the relevant content of the letter reads as under: -
“17. Other Income – Amount credited on settlement with Banks Rs. 895.42 lacs.
As requested by you, on copy each of the Return of income, Computation of Total Income and Assessment Order, evidencing Interest on Loans from Banks/Fin. Inst., amounting to Rs.4,60,65,219/- (which includes an amount of Rs.54,78,304/-), having been offered for tax in the Income Tax Assessment Year 1997-98, is attached herewith – Annexure 1.
We therefore request you to kindly exclude the said sum of Rs. 54,78,304/- from the Total Income for the year under assessment, which had not been excluded while filing the Return of Income for the AY 2004-05.”
The learned Counsel for the assessee also drew our attention to annexure 1 pages 23-24 of assessee’s paper book wherein interest of loans from banks and financial institution was disallowed in the computation of income at Rs. 4,60,65,219/- which includes the interest of 54,78,304/- which pertains to AY 1997-98 offered for tax. We find from the documents and facts of the case that this amount is clearly liable for reduction from the income of this year and CIT(A) has rightly directed the AO to verify and allow the claim of the assessee. We find no infirmity in the order of CIT(A) and this issue of Revenue’s appeal is dismissed.
M/s. BFIL Finance Limited; AY:04-05
The next issue in this appeal of Revenue is against the order of CIT(A) in directing the AO to reduce the amount of sales proceeds of assets of Rs. 2,03,90,844/-. For this Revenue has raised following Ground No. 4: -
“4. On the facts and in the circumstances of the case and in law the learned CIT (A) erred in directing the Assessing Officer to allow reduction of the amount of Rs. 2,03,90,844/- being sale proceeds on sale of assets even though the assessee himself failed to reduce this amount while computing the income which was returned.”
We have heard the rival contentions and gone through facts and circumstances of the case. The brief facts are that the assessee received a sum of Rs.3,90,844/- on 17-12-1999 and a further sum of Rs. 2 crore on 06-01-2000 as advanced from buyer for sale of certain assets. This amount of Rs. 2,03,90,844/- was considered as liability of the balance sheet but the AO treated this income of assessee by not reducing the same from the accounts of the assessee. Aggrieved, assessee preferred the appeal before CIT(A), who allowed the claim of the assessee by observing in Para 8.2 as under: -
“8.2 1 have gone through the facts brought before me by the Ld.AR. If the total sale proceeds of Rs. 2,03,90,844 has been accounted for in the return of Income for AY: 2000-01 by way of reduction from gross block of assets and short term capital gain, the same amount cannot be considered as income again in AY: 2004-05. As the Ld.AR has stated, the amount was not included in the sales and remained as a liability in the books of account and balance sheet of the assessee in AY:2000-01. Therefore, it has been reversed in 2004-05 by crediting the amount to the P&L account. However, this amount cannot be taxed again as profit, if it has been incorporated in the return of income for AY:2000-01. The AO is therefore directed to allow the reduction of the amount of Rs.2,03,90,844 credited to the P&L account Page 8 of 11 M/s. BFIL Finance Limited; AY:04-05 subject to the verification of the facts relating to its disclosure in AY: 2000-01.”
Aggrieved Revenue is in appeal before us.
We find from the facts of the case that the assessee has filed details before AO vide letter dated 16-10-2006 wherein it was cleared that the entire sale proceeds of Rs. 2,03,90,844/- were reduced from the relevant block of fixed assets in the year 2000-01 on account of the advance received from M/s Akai Impex for the sale proceeds. But not consider as sale in the books of accounts for the AY 2000-01 but credit the profit and loss account was inadvertently not excluded from the computation of total income for the AY 2004-05. The relevant information given to the AO vide letter dated 16-10-2006 read as under: -
“18. Liabilities written back-Rs.229.46 lacs
As per requested by you-
A. We are attaching herewith (Annexure 2) the following documents for the income tax AY 2000-01. a) Copy of Intimation under section 143(1)(a) dated 21.02.2002. b) Copy of our Letter filled on 19.02.2003. c) Revised Computation of Total Income. d) Computation of Short Term Capital Gains.
B. We are also attaching herewith (Annexure 3) the following documents filed while filing the Revised Return of Income for the income tax assessment Year 2001-02- a) Revised Return of Income filed on `18.02.2003.
M/s. BFIL Finance Limited; AY:04-05 b) Copy of our Letter filed on 18.02.2003.
As is apparent from the above documents, Short Term Capital Gains were offered to tax in the income tax Assessment Year 2000-2001 and the entire sale proceeds of Rs,2,03,90,844/- were reduced from the relevant Block of Fixed Assets in that year. However, the advance of Rs. 2,03,90,844/- which was received from M/s. Akai Impex for the sale proceeds, not considered as sales in the books of account in the income tax assessment year 2000-2001 and credited to Profit and Loss account for the year, was inadvertently not excluded in the Computation of Total Income for the income tax Assessment Year 2004-05
We therefore, request you to kindly exclude the aforesaid advance of Rs.2,03,90.844/- while computing the Total Incomes otherwise it will lead to double taxation of the same amount, once in the Assessment Year 2000-2001 and again in the year under assessment..”
We find that the CIT(A) has only directed for verification of facts and if found correct the same should be allowed. We find no infirmity in the order of CIT(A) and hence the same is confirmed. The appeal of Revenue is dismissed.
In the result, the appeal of Revenue is dismissed. Order pronounced in the open court on 26-04-2017.