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Income Tax Appellate Tribunal, MUMBAI BENCH “I”, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI ASHWANI TANEJA
PER ASHWANI TANEJA, AM : These appeals pertain to the same assessee and since connected issues are involved, therefore, these are heard together and being disposed of by this consolidated order. First we take up ITA No. 380/Mum/2005 for A.Y 2001- 02.
ITA NO. 380/Mum/2005 for A.Y 2001-02 (Assessee’s appeal)
This appeal was filed by the assessee against the order of the ld. Commissioner of Income Tax (in short referred to as „CIT(A)‟) dt. 1.10.2004 passed against the assessment order u/s. 143(3) dt. 27.2.2004 for A.Y 2001-02 on the following grounds:
“GROUND NO. 1 NON-ALLOWANCE OF DEPRECIATION OF RS. 2,01,820/- ON PLASTIC INJECTION MOULDS PURCHASED BY THE APPELLANT FROM BIJOU LABORATORIES LTD. AND USED IN THE BUSINESS OF LEASING. a. The Commissioner of Income-tax (Appeals), hereinafter referred to as "C.I.T. (A)", has erred in not allowing depreciation in respect of the plastic injections moulds purchased by your appellant and leased out in the ordinary course of its business, by following the order of his predecessor for A.Y. 1996-1997. b. Your appellant respectfully submits that the C.I.T (A) has not considered the fact that all ingredients of a valid lease transaction are present in the lease transaction of the Plastic Injection Moulds by your appellant to Electrex (India) Limited and, hence, the same was a genuine transaction of actual lease. The said lease also satisfies the twin conditions specified in section 32 of the Act for allowability of depreciation. c. Your appellant, therefore, prays that the depreciation of Rs. 2,01,820- be allowed u/s. 32 of the Act in respect of the said plastic injections moulds.
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GROUND NO. 2 DISALLOWANCE OF EXPENSES TO THE EXTENT OF RS. 21,057/- U/S 14A OF THE ACT. a. The C.I.T. (A) has erred in confirming the disallowance to the extent of Rs. 21,057/-, out of finance charges incurred by your appellant during the year under appeal, by assuming that the same were incurred to earn dividend income. b. Your appellant respectfully submits that hardly any expenditure is required to be incurred in relation to the dividend income. At the most, a clerk has to fill up the payslip and deposit the dividend warrant in the bank. This involves hardly any expenditure. Hence, no disallowance under section 14A of the Act is justified. c. Without prejudice to the above, your appellant further submits that, even if it is considered that some expenditure is incurred to earn dividend income, it would be extremely negligible amount, which can be considered as Rs. Nil. d. In view of the above, your appellant prays that the disallowance to the extent of Rs.21,057/-, be deleted.
GROUND NO. 3 TREATING THE BUSINESS LOSS OF APPELLANT AS "SPECULATION BUSINESS LOSS' BY APPLYING THE EXPLANATION TO SECTION 73 OF THE ACT - RS. 9,51,55,104/-. a. The C.I.T. (A) has erred in confirming the action of the assessing officer in treating the loss in trading in shares & securities for the year under appeal as "Speculation Loss", by applying the Explanation to Section 73 of the Act. b. Your appellant respectfully submits that it is a Non-Banking Financial Company, engaged in the business of: (a) Leasing and Hire Purchase, (b) Financing activity (i.e. granting of loans and advances Inter-Corporate Deposits, Bill Discounting etc., (c) investment in shares, debentures, units etc. and other business activities. The principal business, for which your appellant was incorporated and which is being carried out for past several years, is "granting of the loans and advances" as envisaged in the Main Objects of your appellant as per the Memorandum and Articles of Association. As such, your appellant falls in the category of excluded companies, specified in the second limb of Explanation to Section 73 of the
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Act. Thus, the provisions of Explanation to Section 73 of the Act are not applicable to the company. c. Your appellant, therefore, prays that the loss from purchase / sale of securities be held as "non-speculation" or "normal" business loss and the same be allowed to be set off against income under other heads of income. The balance loss remaining unabsorbed be allowed to be carried forward to subsequent years.
GROUND NO. 4 - DISALLOW ANCE OF RS. 5,84,000/- OUT OF INTEREST EXPENDITURE ON ACCOUNT OF AMOUNT DUE FROM MR. H. N. BUDHRANI. a. The C.I.T.(A) has erred in confirming the disallowance to the extent of Rs. 5,84,000/- out of interest expenditure on account of amount due from Mr. H. N. Budhrani on the ground that part of the interest expenditure was relatable to the amount due / receivable from the said Mr. H. N. Budhrani. b. Your appellant respectfully submits that the interest was paid to the bank in respect of the borrowed funds, which were used by the appellant for its business activities and there was no nexus between the said interest paid by the appellant to the bank on borrowed funds and the amount due / receivable from Mr. H. N. Budhrani in respect of the shares sold during the normal course of business. As such, the entire interest expenditure incurred by it during the year under appeal was allowable as deductible expenditure u/s.36(1)(iii) of the Act. c. Your appellant, therefore, prays that the disallowance of interest to the extent of Rs.5,84,000/-, be deleted.
GROUND NO. 5 CHARGING OF INTEREST UNDER SECTION 234B OF THE ACT. a. The C.I.T. (A) has erred in confirming charging of interest under section 234B of the Act, even though there was no specific direction / order to that effect in the assessment order. b. Your appellant respectfully submits that, as per the settled law, in the absence of any specific direction in the assessment order to that effect, no interest can be levied.
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c. Your appellant, therefore, prays that interest charged under section 234B of the Act, be deleted.
GROUND NO. 6 CHARGING OF INTEREST_UNDER SECTION 234D OF THE ACT - RS.40,695/-. a. The C.I.T. (A) has erred in confirming charging of interest at Rs. 40,695/- under section 234D of the Act. b. Your appellant respectfully submits that, as per the settled law, in the absence of any specific direction in the assessment order to that effect, no interest can be levied. c. Your appellant, therefore, prays that interest charged under section 234D of the Act, be deleted. d. Without prejudice to the above, your appellant further submits that the provisions of section 234D of the Act were inserted with effect from 1st June, 2003. In the case of your appellant, the refund of Rs. 5,84,700/- (in respect of which interest u/s. 234D is levied) was adjusted against the demand for A. Y. 1998-99 in March, 2003. Your appellant submits that since the said section was not on the statute prior to June, 2003, the provisions of section 234D of the Act are not applicable to that adjustment of refund. e. Your appellant, therefore, prays that interest charged under section 234D of the Act, be deleted. f. Without prejudice to the contentions raised at (a) to (e) above, in the unlikely event of upholding the charge of interest u/s. 234D of the Act, your appellant prays that the assessing officer be directed to levy interest only w.e.f. from 1st June, 2003, being the date from which the said section was introduced.”
Ground no. 1 : In this ground, the assessee has challenged the action of the lower authorities in not allowing depreciation in respect of plastic injection mouldings purchased by the assessee and leased out in the ordinary course of business by following the orders of the earlier years for A.Y 1996- 97. The brief facts are that the assessee-company was engaged in the business of leasing, hire purchase, investment in stocks etc. During the course of the
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assessment proceedings for A.Y 1996-97 it was found that several lease transactions were not genuine lease arrangements, and therefore, depreciation claimed by the assessee was disallowed. In the year before us also, the Assessing Officer (in short referred to as „AO‟), following the order of A.Y 1996-97 held that plastic injection moulding leased out by the assessee was not a genuine lease arrangement but only a financing arrangement, and therefore, depreciation claimed on these assets at Rs.2,01,820/- was disallowed. Being aggrieved, the assessee filed an appeal before the ld. CIT(A). There also, following the order of A.Y 1996-07 of the ld. CIT(A), the action of the AO was confirmed and the ground was dismissed. Being aggrieved, the assessee has filed an appeal before the Tribunal.
3.1 During the course of the hearing, Ms. Vasanti Patel, the ld. Counsel of the assessee submitted that this issue has already been decided by the Tribunal in assessee‟s own case by a consolidated order dt. 1.5.2014 for A.Ys 1996-97, 1997-98 and 1998-99. It was submitted that this issue has been sent back by the Tribunal for re-examination by the AO. On the other hand, the ld. Departmental Representative (in short referred to as „DR‟) has relied upon the orders of the lower authorities.
3.2 We have gone through the orders of the lower authorities and the order of the Tribunal of the preceding years. It is noted by us that same issue was involved in the earlier years, which has been decided by the Tribunal by the aforesaid order in the following manner :-
“2. These are very old appeals and were lastly fixed for hearing on 29/4/2014. Ld. A.R was required to explain as to why these appeals were pending since long. It was informed by Ld. AR that the issue raised in the present appeals is regarding grant of depreciation in respect of leased assets and the issue was pending before Special Bench, therefore, these
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appeals were adjourned from time to time. He submitted that Special Bench in the case of Indus Ind Bank vs. ACIT, 135 ITD has rendered the decision, which was against the assessee. He submitted that subsequently, Hon'ble Supreme Court in the case of ICDS Vs. CIT, 350 ITR 527 (SC) has decided the issue in favour of the assessee. He also submitted that assessee has submitted various applications for admission of additional evidence and they are also to be considered while deciding the present appeals.
At the outset, it was submitted by him that the entire issue raised in the present appeals will have to be reconsidered as the benefit of decision of Hon'ble Supreme Court in the case of ICDS vs. CIT (supra) was not available when the assessments were made by the AO and appeals were decided by Ld. CIT(A). Upon hearing such submissions of A.R, it was considered necessary to bring all these facts on record, therefore, these appeals were adjourned to 1/5/2014 and Ld. AR was required to submit detailed submissions to bring out all these facts.
In this view of the situation, after hearing both the parties and considering the contents of aforementioned three letters, we consider it just and proper to restore all the issues raised in the present appeals to the file of AO for denovo consideration as per law after giving the assessee a reasonable opportunity of hearing and placing all relevant material which is required to dispose of these issues. With these directions we restore all the issues raised in the present appeals to the file of AO.
In the result, for statistical purposes, all the appeals filed by the assessee will be considered to be allowed in the manner aforesaid.”
No distinction has been made out by the ld. DR on facts of this year. Thus, respectfully following the judgments of the Hon‟ble co-ordinate bench, we send this issue back to the file of the AO to be decided afresh with the same directions as has been given by the Tribunal in the aforesaid order. The assessee is free to raise all legal and factual issues before the AO, for which adequate opportunity of hearing shall be granted to the assessee. Thus, this ground is treated as partly allowed for statistical purposes.
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Ground no. 2 : This ground is with regard to disallowance sustained by the ld. CIT(A) to the extent of Rs. 21,057/- out of total disallowance of Rs.35,090/-. No serious arguments were made by the ld. Counsel on this issue, and therefore, this ground is dismissed.
Ground no. 3 : In this ground, the assessee has challenged the action of the lower authorities in treating the loss in trading in shares and securities for the year under appeal as speculation loss by applying Explanation to Sec. 73 of the Act.
5.1 In this regard, the ld. Counsel of the assessee submitted that the principal business of the assessee in this year was granting of loans and advances, and therefore, the assessee‟s case falls in the exclusion given in the second limb of Explanation to Sec. 73 of the Act. In other words, the provisions of Explanation to Sec. 73 of the Act were not applicable to the assessee-company. It was submitted that this issue also requires re- examination in line with ground no. 1. The AO is required to scrutinize the facts with regard to business of the assessee so that the assessee can be given the benefit of exclusion provided in the law.
5.2 On the other hand, the ld. DR has also accepted that this issue can go back to the file of the AO.
5.3 We have gone through the orders of the lower authorities and the submissions made by both the sides. It is noted by us that while deciding the issue in ground no. 1, the AO has held that the transaction done by the assessee was a financing arrangement and not a lease transaction, whereas while deciding this issue, the AO held that the assessee was not in the business of financing. Thus, the stand of the AO is self-contradictory on the
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face of it. In view of these facts, we find it appropriate to accept the request made by both the parties and send this issue back to the file of the AO to be decided in line with, and after deciding the issue in ground no. 1. The AO shall grant full opportunity to the assessee and the assessee is permitted to raise all legal and factual issues on this issue Thus, this ground is treated as partly allowed for statistical purposes.
Ground no. 4 : In this ground the assessee has challenged the action of the ld. CIT(A) in confirming the disallowance to the extent of Rs. 5,84,000/- out of interest expenditure claimed by the assessee on account of amount due from Shri H.M. Budhrani, Director (one of the shareholders of the assessee-company). The brief background of this issue is that during the year the assessee sold shares of UTV to Shri H.M. Budhrani on 12.9.2000 vide Board resolution dt. 4.9.2000. The amount of sale consideration remained receivable on 31.3.2001 and the same was eventually received on 11.5.2001. The AO noted that the assessee had incurred interest expenses on the loan received from bank @ 12%. It was further noted by the AO that the assessee did not charge any interest from Shri H.M. Budhrani. Under these circumstances, the AO made proportionate disallowance of interest expenditure claimed by the assessee to the tune of Rs. 17,58,000/-. Being aggrieved, the assessee filed an appeal before the ld. CIT(A), wherein it was submitted that the loan of bank was used by the assessee in its business, and therefore whole of the interest expenditure was allowable as deduction u/s. 36(1)(iii) and further there was no nexus between the borrowed funds and the amount due from Shri Budhrani in respect of the shares sold to him by the assessee. The ld. CIT(A) considered the submissions of the assessee but was not fully satisfied. He upheld the disallowance in principle, but reduced the same to Rs.5,84,000/- on the ground that shares were transferred on
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25.1.2001, and therefore, interest could have been levied only during the period from 25.1.2001 to 31.3.2001. Both the parties have challenged the action of the ld. CIT(A) before us.
6.1 We have heard both the parties at length and gone through the orders of the lower authorities. It is noted by us that the amount due from the Director (one of the shareholders of the assessee-company) was on account of shares sold by the assessee to him. The amount was not given by way of loan or advance but the amount was due on account of sale consideration. The amount was receivable in the normal course of the business. As per the facts narrated before us, which remains undisputed by the ld. DR, the assessee- company does not charge interest from each and every customer in this manner. It is further noted that admittedly there was no nexus between the bank loan and the sale of shares. We find no reason and justification in making disallowance out of the interest expenditure on the ground that the shares were sold to Shri Budhrani, the consideration of which remained unpaid till 31.3.2001. Thus, we direct the AO to delete this disallowance in toto. Thus, the disallowance sustained by the ld. CIT(A) of Rs.5,84,000/- is also directed to be deleted. Thus, ground no. 4 is treated as allowed.
Ground nos. 5 & 6 are with regard to levy of interest and being consequential, these are dismissed.
As a result, this appeal is treated as partly allowed.
ITA NO. 185/Mum/2005 for A.Y 2001-02 (Revenue’s appeal)
This appeal has been filed by the revenue against the order of the ld. CIT(A) dt. 1.10.2004 passed u/s 143 of the Act on the following grounds:
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“(1) "On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in restricting the disallowance to Rs.21,057/- u/s. 14A stating that only finance charges should be considered for disallowance."
(2) "On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in restricting the disallowance of interest expenditure from Rs. 17,58,000/- to Rs. 5,84,000/- even though the shares were sold on 12-09-2000."
(3) "On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the disallowance of bad debts amounting to Rs. 35,29,475/-."
(4) "The Appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored."
(5) "The Appellant craves leave to amend or alter the ground or add a new ground which may be necessary."
Ground no. 1 : This ground is with regard to relief provided by the ld. CIT(A) of Rs.21,057/- u/s. 14A. No serious arguments were made on this ground, and therefore, it is dismissed.
Ground no. 2 : This ground deals with the relief provided by the ld. CIT(A) by restricting the disallowance of interest expenditure from Rs.17,58,000/- to Rs.5,84,000/-. It is noted that this ground is common with ground no. 4 of assessee‟s appeal. We have already held in our order that disallowance was totally illegal; therefore, the ground raised by the revenue is dismissed.
Ground no. 3 : In this ground the revenue has challenged the action of the ld. CIT(A) in deleting the disallowance of bad debts amounting to
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Rs.35,29,475/-. The brief facts are that the assessee claimed in this ground amount of bad debts written off amounting to Rs.35,29,475/-. The AO disallowed the claim on the ground that the AO was not satisfied that the assessee was able to prove that the debt had become bad. Being aggrieved, the assessee filed an appeal before the ld. CIT(A). The ld. CIT(A) held that since the assessee had written off the debt, that was sufficient compliance of the law, and therefore, the claim of the assessee could not have been denied and accordingly the disallowance made by the AO was deleted.
12.1 Before us, the ld. Counsel of the assessee has submitted that this issue is now covered by the judgement of the Hon'ble Supreme Court in the case of T.R.F Ltd. v. CIT, 190 taxmann 391 (SC). Our attention was drawn to the paper book showing that debts were written off by the assessee before claiming it in the profit and loss account. On the other hand, the ld. DR relied upon the order of the AO.
12.2 We have gone through the orders of the lower authorities and the facts before us. It is noted that this issue is now settled by the decision of the Hon'ble Supreme Court in the case of T.R.F Ltd. (supra), wherein it has been held that after the amendment made u/s. 36(1)(vii) w.e.f. 1.4.1989 it is not necessary for the assessee to establish that the debt, in fact, had become irrecoverable. It was enough if the bad debt was written off as irrecoverable in the accounts of the assessee. It is noted from the balance-sheet of the assessee with the assistance of both the parties that no provision has been made for bad debts. The claim has been made in the profit and loss account on account of bad debts actually written off. In our view the position of law is clear in the given facts in view of the aforesaid judgment of the Hon'ble Supreme Court. Thus, respectfully following the same, we uphold the order
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of the ld. CIT(A) in deleting the disallowance of bad debts. Thus, this ground is dismissed.
Ground nos. 4 & 5 are general and do not need any specific adjudication.
As a result, appeal of the revenue is dismissed.
ITA NO. 4211/MUM/2008 for A.Y 2001-02 (Revenue’s appeal)
This appeal has been filed by the revenue against the order of ld. CIT(A) dt. 31.3.2008 against the penalty order u/s. 271(1)(c) contesting deletion of penalty on the following grounds :
“1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the penalty of Rs.3,72,49,309/- levied u/s. 271(1)(c) by the assessing officer in respect of trading loss treated as speculative loss and disallowance of depreciation on leased assets without appreciating that the assessee had concealed the particulars of its income and had furnished inaccurate particulars of such income.
The appellant prays that the orders of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored.”
14.1 It is noted that the issues on which penalty was levied by the AO, which was deleted by the ld. CIT(A), have been sent back to the file of the AO for de novo adjudication. Thus, as on date there remains no basis to continue with the penalty, and therefore, we uphold the order of the ld. CIT(A) in deleting the penalty. However, the AO is free to initiate and levy the penalty after deciding this issue afresh, if considered appropriate as per law.
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As a result, the appeal of the revenue is dismissed in terms of our order given above.
In the result, both the revenue‟s appeals are dismissed and the assessee‟s appeal is partly allowed.
Order pronounced in the open court on 24th February, 2016.
Sd/- Sd/- (SAKTIJIT DEY) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Date : 24th February, 2016
Copy to : 1) The Appellant 2) The Respondent 3) The CIT(A) concerned 4) The CIT concerned 5) The D.R, “I” Bench, Mumbai 6) Guard file By Order
Dy./Asstt. Registrar *SSL* I.T.A.T, Mumbai